Customs Fraud and Illegal Imports Final Report

Transcription

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FRIDGE Research – Customs Fraud And Illegal Imports Final Report (Phase 1 – 4) dated 31 March 2010
EXECUTIVE SUMMARY
INTRODUCTION
The IDC contracted the Consortium to conduct a comprehensive research into various areas of
customs fraud and illegal imports, with a view to identifying mechanisms and structures which
could be utilised to combat the current unacceptably high levels of fraud or illegal importation in
various identified sectors.
THE SCOPE
The scope of the research project consisted of:
1)
A critical review of existing practice particularly relating to:
Law enforcement – levels of cooperation/coordination amongst enforcement agencies
and between enforcement agencies and business and labour;
Level of resourcing of enforcement agencies (SARS / ITAC / SAPS); and
The prevalence of customs fraud and illegal imports in industrial goods sectors.
2)
Review of international best practice to serve as a benchmark against which options for
improvement in the South African system can be measured including co-operative structures
amongst the enforcement agencies and between the enforcement agencies and Business
and Labour. (Gaps)
3)
Options for improvement (Recommendations) including, but not limited to:
Regulatory instruments (including penalties and sanctions);
Co-operation amongst enforcement agencies and between enforcement agencies and
Business and Labour; and
Administrative instruments.
The research was conducted primarily as a desktop assignment, but included significant interaction
and interviews with the sector stakeholders, government departments and related parties.
To
improve the sample of information, the Consortium also conducted a survey with the industry
stakeholders, SARS, SAPS and other relevant parties. The sample provided some insight into the
issues contributing to the successes and challenges within the Customs environment.
i|Page
The research was conducted with the framework of an approved workplan and was guided by the
input, comments and suggestions of the Counterpart Group (CPG).
SOUTH AFRICAN RESEARCH
The review of the South African customs environment focused on key elements of applied
legislation, multilateral agreements as well as recent developments in relation thereto. This review
and the stakeholder engagements formed a critical component of the gap analysis and
recommendations.
Levels of co-operation and resources within the departments responsible for customs were
explored.
The Border Control Operational Coordinating Committee (BCOCC) is based on sound
principles, but does not function effectively insofar as implementation is concerned. Infrastructure
challenges and initiatives aimed at addressing customs fraud were identified. Representatives of
customs enforcement agencies (SAPS, ITAC and SARS) were interviewed with focus on inter alia:Mandates;
Staffing models;
Resourcing;
Risk management;
Strategy and policy, and
Other key initiatives aimed at effective enforcement protocol.
Our findings suggest that even though there are many initiatives aimed at addressing customs
fraud, they have been plagued by poor integration, budget and capacity constraints as well as lack
of project continuity.
Modernisation initiatives, which have framed SARS‘ customs agenda for many years, have started
to see fruition with the implementation of a new IT platform in the form of a new system known
as TATIS with its integrated risk engine.
These developments augur well for progressing with Authorised Economic Operators (AEO), an
international standard by the WTO aimed at fast tracking reputable and compliant importers; and
other key customs control developments that will align us with international best practice.
ii | P a g e
The survey, to which mainly SARS officials responded, reflected the following challenges:
Lack of awareness of the anti-corruption hotline;
Limited investigation capacity;
Ineffective information sharing; and
Perceptions in relation to fraud prevalence in the Clothing, textile and footwear sectors.
SECTOR REPORTS
Dairy
The primary production sector is more labour intensive than the secondary (processing) industry and
directly employs approximately 60,000 workers while approximately 16,000 workers are employed by
the secondary industry. Dairy products represent two of the top ten employment generators in the
economy. The total investment in the sector is estimated by the Milk Producers‘ Organisation (MPO)
to be approximately R20 to R25 billion per annum.
Our research indicated that SARS does not view the importation of dairy products as a high risk with
regard to non-compliance and fraud. Products that are imported at abnormally low prices as a result
of fraudulent activities place the dairy industry at a competitive disadvantage and increase the
barriers to entry for potential emerging farmers and also impacts negatively on the sustainability of
existing emerging farmers. As a result of the threat posed to the dairy industry by illegal and substandard imports, capacity was created by the primary dairy industry to identify and address such
imports through the establishment of a forensic investigation company.
The perceived lack of co-operation and co-ordination among government agencies involved with
customs services with regard to imported dairy products led to the establishment of a forum with
representation from the Departments of Agriculture and Health, SARS, The Dairy Standard Agency
and the dairy industry. All issues relevant to the import and export of dairy products are discussed by
the forum and action steps are taken to address problems.
It was revealed that customs tariff classification for dairy products e.g. whereby products with a dairy
content are classifiable under different tariff sub-headings at different rates of duty, ad valorem
duties and inefficient administration of rebate provisions lead to customs fraud in the sector.
iii | P a g e
Importers who utilise rebate provisions when importing dairy products were found to purposefully not
comply with the conditions of rebate provisions in order to avoid or minimise the customs duty
payable. Consignments of dairy products, for which the Free on Board prices are extremely low and
not in line with production costs or published world prices, are imported and frequently originate from
questionable sources like the Isle of Man, Singapore and Thailand.
Livestock and Red Meat
Livestock farming takes place throughout South Africa with the numbers and species being dependent
on production potential, climatic conditions, the concentration of population, the availability and
accessibility of inputs and the location of markets. The livestock industry, which accounts for more
than 40% of the total value of agricultural output, is a very important component of the agricultural
sector and the national economy. Due to livestock farming being largely natural resource based, it
occupies approximately 80% of the land available for agriculture. Animal husbandry is the primary
income generator in the majority of the rural areas in the country.
The livestock sector is one of the top ten employment generators in the South African economy with
approximately 425,000 direct and indirect employees and a further 2,125,000 people dependent on
the livestock industry for their livelihood. The total investment in the industry amounts to more than
R20 billion per annum.
The industry is well-organised within various organizations representing different commodities and
services under the umbrella of the representative structure of the red meat industry, namely South
African Meat Industry Company (SAMIC).
The prevalence of customs fraud, in particular, under-declaration of value and weight and smuggling,
is very high in the livestock sector, especially with regard to the trade in livestock from neighbouring
countries such as Namibia, Zimbabwe and Lesotho through the country‘s land border posts. Large
numbers of weaner calves, sheep and goats are exported at under-declared values and quantities to
South Africa from Namibia.
The content of the trucks is poorly inspected at the border post to verify the correctness of import
documentation owing to various reasons which include; insufficient lighting, off-loading and
inspection facilities at the border post. Cattle and sheep carcasses are smuggled from Namibia or
brought in at under-declared values.
Research indicated that SARS officials are not adequately
trained with respect to livestock and red meat; and do not have sufficient product knowledge to
conduct inspections for verification purposes.
iv | P a g e
Large sections of the boundary fence between Zimbabwe and South Africa are either damaged or do
not exist anymore and are not repaired and/or maintained by the responsible authorities. During the
winter months when the Limpopo River is not flowing, significant numbers of cattle are smuggled into
South Africa posing a major risk with regard to the spread of transmittable diseases. The problem is
exacerbated by the fact that the relevant South African authorities such as the SAPS Border Police,
SARS‘ Border Control Unit and the Department of Agriculture‘s Directorate: Animal Health, do not
have sufficient capacity to patrol, maintain and control the border fence adequately.
An investigation by the Red Meat Producers‘ Organisation revealed that large numbers of livestock are
illegally entering South Africa from Lesotho.
Illegal activities enable exporters from neighbouring
countries to deliver livestock to the RSA meat market at prices against which South African livestock
producers cannot compete. The under-declaration of value and numbers of imported livestock has a
direct negative effect on the South African market price of red meat.
Footwear
The majority of factories producing footwear are small to medium sized employers. According to
SAFLIA, labour statistics from the National Bargaining Council of the Leather Industry of South Africa
(NBC) reflected a decrease of 1,4% in employment in 2008, compared to 2007. The statistics for
investment over the period between 2006 and 2008 indicate a steady decrease in gross domestic
fixed investment.
According to industry representatives, fraudulent imports have significantly contributed to job and
investment losses. Research has revealed that the following types of fraud are most prevalent in the
footwear sector: counterfeiting, under-invoicing and smuggling.
SAFLIA estimates that 50% of all imported footwear in SA has entered the country illegally, especially
those from China. It is, however, not impossible for South African law enforcement agencies to prove
this, since the Chinese Government refuses to supply them with information. SARS officials confirmed
that, according to the WTO regulations, South African Customs Officials are obliged to accept the
commercial invoice as the true value of the goods, if they cannot prove the contrary. Due to the vast
number of containers brought in daily and comparatively few customs officials available to inspect
such, the majority of these goods enter South Africa undetected.
The rates of duty on footwear imports vary between free and 30% ad valorem. Industry-related
investigations indicate that ad valorem duties are an incentive for importers to under-value or underinvoice the imported goods.
v|Page
As a result of different trade development and co-operation agreements with various countries, the
rates of duty applicable to similar items differ depending on the country of origin. This creates a
further incentive for fraud in mis-declaring the country of origin on the labeling and import
documentation with regards to these goods.
SAFLIA requires payment of a compulsory levy in support of the Footwear Industry Technological
Fund. Part of this is used to train Customs Officials at POE‘s (to improve monitoring of compliance
with legislation) and to maintain a database on production, employment, imports, and exports in the
footwear sector. SAFLIA indicated that these initiatives are only now starting to bear fruit, partly due
to the problem of constant restructuring in SARS and the SARS Customs Academy not being widely
known in the industry.
SAFLIA suggested that some form of footwear specific and general qualifications be instituted for the
customs officials. It was further suggested that limiting the ports of entry for footwear (and other
products) would greatly reduce illegal imports as expertise could be concentrated.
Clothing and Textiles
The textile industry was one of South Africa‘s major employers in the manufacturing sector in the
past but is currently a relatively small employer. The clothing industry sector is a significant source of
employment, particularly for women.
The clothing industry is labour intensive while the textile
industry is more capital intensive. During the period 2003 to 2008 both the local textile and clothing
industries were characterized by the closure of a number of companies with the resultant loss of
employment.
The key challenges facing the clothing and textile sectors are seen by industry
representatives as the loss of domestic market share to imports, together with low levels of
profitability and investment; and the alarming level of job losses and a shortage of skills.
The concern that Eastern countries flood our local markets with low priced imported textiles and
textile products is still real. According to SARS the rapid growth in illicit trade (such as counterfeit
goods and under-valued textiles and clothing originating from the east, in particular) continually
eroded South Africa‘s revenue base and was the main cause of the closure of clothing and textile
factories and numerous job losses.
Our research has shown a significant decrease in production capacity from 2006 to 2008. This could
be attributed to a decline in demand for textile products as a result of a combination of any of the
following: continuous low priced imports from China; the economic recession, including increased
interest rates and the higher fuel and electricity prices; closure of factories as a result of the
economic recession; decline in exports of manufactured goods; and the perception that SA cannot
leverage resources towards market needs.
vi | P a g e
Our research has indicated that the following types of fraud are most prevalent in the textiles and
clothing sector: under-valuation, counterfeiting and mis-declaration of origin and tariff classification.
Industry related investigations indicated that the application of ad valorem duties creates a significant
incentive for importers to under-value or under-invoice the imported goods. Similar products are
further classified under different tariff sub-headings at varying rates of customs duty, which was also
identified as an incentive for customs fraud.
Importers tend to incorrectly clear the imported
products under the tariff sub-heading subject to the lowest rate of customs duty. This is exacerbated
by insufficiently staffed ports of entry and/or inexperienced or insufficiently trained customs officials.
Because of the difficulties in distinguishing between different fabrics industry representatives suspect
that rebate provisions are abused through the mis-declaration of the customs tariff classification of
imported products.
Circumvention of the tariff as a result of preferential rates of duty in terms of trade agreements has
emerged as a problem. Rules of Origin certificates are obtained fraudulently and presented to SARS
officials who do not have sufficient product and/or sector knowledge and accept certificates as being
authentic. Industry representatives cited insufficient product knowledge, a lack of training of customs
officials and lack of communication, information sharing and coordination between SARS and SAPS as
contribute to the problem.
According to industry representatives SARS has taken a positive step in the right direction by
committing to the development/implementation of an Indicative Price System whereby recommended
minimum prices per item will be loaded electronically onto the system and warning signals will be
raised when items are imported at prices below these amounts. Such imports, however, can still not
be stopped unless proven fraudulent.
Tyres
The SA pneumatic tyre manufacturing industry comprises four companies, operating six factories, all
of which are controlled by international companies. The interests of the role-players in the industry
include the South African Tyre Manufacturers‘ Conference (SATMC), the National Regulator for
Compulsory Specifications (NRCS), the National Union of Metal workers of South Africa (NUMSA) and
the Retail Motor Industry (RMI).
SATMC statistics show that the industry has suffered more than 1200 job losses from 2003.
According to the SATMC, cheaper imports originating predominantly from China caused some of the
job losses.
According to the role players in the industry, the scams and malpractices that are
prevalent in the industry are under-valuation, round-tripping, abuse of trade agreements, sale of
second-hand tyres, removal in bond/transit abuse, and mis-declaration.
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According to the SATMC, the existing tariff classification with regard to some of the types of tyres, in
particular the bigger sized tyres is outdated and makes it difficult to meaningfully monitor imports.
The relatively high level of customs duties coupled with the structure thereof ( ad valorem duties) give
rise to customs fraud. An example is when importers manipulate the free on board values of the
imported products in order to minimize the ad valorem duties payable.
The under-declaration of the value of imported tyres has a significant negative impact on the
competitiveness of the South African industry.
Import statistics are available from SARS, but the
usefulness of the statistics by the industry in terms of the identification and combating of fraudulent
imports is extremely limited. The reason for this is that the identity of importers and access to import
documentation is protected by law in terms of the provisions of the Customs and Excise Act, 1964.
In terms of the SADC Agreement, tyres manufactured in the SADC member States can enter South
Africa free of duty. There is mis-declaration of origin since the rules of origin (RoO) are not applied
consistently and efficiently. These results in tyres originating from destinations outside SADC, being
exported by SADC member states to South Africa, and entering the country free of duty.
According to the SATMC, there appears to be a major problem between SARS and the Directorate:
Import and Export Control at ITAC with regard to the verification of second-hand tyre casing imports
against import permits issued. The SATMC proposes that imported containers of second-hand tyres
should be targeted on a profile basis for physical inspection owing to under-declaration of quantities
being highly likely; and the incident might include undeclared goods in the container like new tyres
that should attract an import duty.
Used tyres brought into South Africa for retreading purposes from any of the Botswana, Lesotho,
Namibia and Swaziland (BLNS) countries are supposed to be returned to the relevant BLNS country
once it has been retreaded.
These tyres are not captured in the SARS system and no acquittal
system is in place. This could potentially give rise to fraudulent practices. The SATMC proposes that
a formal system be put in place for the verification of conformance to compulsory National Regulator
for Compulsory Specifications (NRCS) standards.
Employment is a significant issue for this sector owing, inter alia, to location of the manufacturing
facilities. Therefore any job losses and lost investment opportunities due to import fraud have a
significant impact on development and employment within the sector.
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Motor Vehicles and Components
The automobile sector is the largest manufacturing industry in South Africa although its output in the
world market is only about 1%. The sector accounts for about 10% of South Africa's manufacturing
exports, making it a crucial cog in the economy. Locally, the automotive sector is a major contributor
in that it contributes about 7.5% to the country's gross domestic product (GDP). Naacam reports
that the employment fell to about 76,000 in 2008, 6% below 2007. The total employment in this
industry combined is in excess of 106,000.
Industry representatives indicated that the following criminal activities are largely prevalent in the
motor vehicle sector: illegal imports, under-declaration, round-tripping in exports, fraud, and
corruption
The electronic clearance system introduced by SARS can be an effective logical and/or logistical tool
for dealing with customs clearance and fraud of motor vehicles if the standard and universal way of
capturing vehicle identification information could be applied and adhered to.
The vehicle
identification information like the VIN number, the model and colour constitute baseline information
used to describe and identify vehicles the world over, SADC countries included.
Tariff classification of components is according to identification numbers for original parts. According
to the industry, there are loopholes in the system to avoid higher duties because no effective control
exists.
This leads to the government losing billions in unpaid duties on imported parts.
Illegal
imports, under-declaration, round-tripping in exports, fraud and corruption result not only in revenue
loss for the government but in job losses as that affects local industries.
Apart from an enabling legislative framework, there are 3 main measures put in place by government
to pull back some of the negative effects of crime, fraud and corruption related to the motor vehicle
industry. These are vehicle registration and licensing, police clearance, and vehicle roadworthy
testing.
Vehicles from the BLNS countries at present require no permit to enter South Africa. This has created
a serious loophole in the regulatory framework which is fully exploited for vehicle fraud and crime.
Our research indicates that most used vehicles imported for SADC countries from Japan and other
countries never leave South Africa. They never reach the declared countries of destiny. SAPS have
warned motorists intending to buy second-hand cars to beware of illegally imported vehicles.
ix | P a g e
BENCHMARKED COUNTRY REVIEWS
Canada
The Canada Border Services Agency (CBSA) administers and enforces the collection of duties and
taxes in terms of the Customs Act.
The CBSA launched the Customs Self Assessment (CSA)
programme for imported goods entering the country from the United States in order to provide lowrisk, pre-approved companies which possess a history of good compliance, with an expedited border
clearance option and streamlined accounting and payment processes for imported goods.
Partners in Compliance (PIC) is a CBSA pilot project which promotes partnerships between the CBSA
and industry in order for businesses to attain the highest rate of compliance with the CBSA's trade
programs (tariff classification, origin and value for duty). The main advantage of the system is that
the CBSA can focus its post-release verification resources on areas of higher or unknown risk.
Through the Other Government Departments (OGD) Interface importers and brokers who have gone
through the required testing can send transactions electronically instead of presenting documentation
at the ports of entry offices.
The CBSA National Learning Centre located in Rigaud, Quebec annually trains 630 new recruits to be
stationed all across Canada as Border Services Officers. The Port of Entry Recruit Training (POERT)
programme currently consists of 13 weeks of training. The Detector Dog Training Programme also
takes place at Rigaud.
Our research has determined that South Africa has made some improvements in line with Canada‘s
best practice, although we have set out the South Africa gaps and made corresponding
recommendations, which will align South Africa with some of these practices. Notwithstanding, we
found a lack of strategic and operational coherence with the SARS academy.
France
As a member state of the European Union (EU), France is subject to its customs administration rules
and policies. Council Regulation (EEC) No 2658/87 of 23 July 1987 established a Combined
Nomenclature (the tariff and statistical nomenclature) and created the Taric ( Integrated Tariff of the
European Communities), which provides the best means of collecting, exchanging and publishing data
on Community external trade statistics.
x|Page
Co-operation among EU Member States' police forces and customs administrations is crucial to the
maintenance of an area of security. The French Customs authorities have substantial infrastructure
and equipment that are used in the customs environment. A 2006 Green Paper was developed with
the aim to improve detection technologies and stimulate partnerships between public and a private
sector.
Within the next few years, Customs will become paperless process.
Thereafter, the customs
networks of all member States will be fully integrated electronically, providing a ‗ one-stop-shop‘
system for customs interaction with traders throughout the EU. France plays an important role in the
Customs Fellowship Programme, which it funds and is active in training programmes for other
countries with WCO.
Malaysia
The Royal Malaysian Customs [(RMC/JKDM) / (Malay: Kastam Diraja Malaysia (KDRM)] is the
government agency responsible for administrating Malaysia‘s indirect tax policy. In this regard, the
RMC / KDRM administers 7 main and 39 subsidiary laws related to its mandate – in addition to
implementing 18 other laws for other government agencies. Currently the administrative structure of
the Customs and Excise Department is headed by a Director General, with Deputy Directors General
for Enforcement and Compliance; Customs and Internal Taxes; and Management. One effective way
Malaysia deals with this is by way of reviews by auditors on the effectiveness of existing revenue laws
and procedures in order to identify deficiencies in the systems – thereby enabling tax administrators
to introduce controls that can discourage, if not eliminate, tax evasion which, if unchecked, could
eventually erode the tax base.
Malaysia has a comprehensive legal framework and well resourced specialist investigation and
prosecution agencies to proactively combat corruption, including in customs fraud, across Malaysia.
Malaysia has offered to be an ASEAN (Association of Southeast Asian Nations) Customs enforcement
training agent in an effort to strengthen cooperation and enforcement operations in the region.
According to a representative of the Royal Malaysian Customs Academy, Mr Abdul Rahman, "An
interesting aspect of the course will be practical training where the participants will be involved in
enforcement operations like mounting roadblocks and conducting raids. The training methodology
will expose the foreign participants to our enforcement strategies which have been recognized as
among the best in the world.‖ He also cited the smuggling of arms, drugs, dangerous chemical waste
and timber as the main challenge facing ASEAN Customs.
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India
The Directorate-General of Central Excise Intelligence (DGCEI), headed by the Director General, is the
apex intelligence organization under the Central Board of Excise and Customs (CBEC), Department of
Revenue, Ministry of Finance. Its purpose is to detect evasion of central excise duties and service
tax.
DGCEI gathers intelligence relating to evasion of central excise duties and service tax and
disseminates it to the field formations.
The Directorate Revenue Intelligence (DRI) in its present form is charged with the collection of
intelligence, analysis, collation, interpretation and dissemination on matters relating to violations of
customs laws.
According to Global Integrity 2006, the Indian Customs Department is generally viewed as rife with
corruption, favouritism and nepotism. Under-valuation is noticed in the case of medium and large
scale units especially in case of consumer products. With the rationalisation of tariff and imposition of
uniform duty of 16% on most goods, the incentive for mis-classification of goods for the purposes of
duty evasion has been reduced.
The Government has framed a system of rewards for people who help in the detection of the tax
evasion.
ICEGATE is an infrastructure project that fulfils the department's EC/EDI and data
communication requirements. The ―Risk Management System in Customs ‖ (RMS) has been
implemented in 23 major POE‘s, covering about 85% of India‘s international trade.
It has
revolutionized the customs import clearance process by cutting down the clearance times drastically.
GAP ANALYSIS AND RECOMMENDATIONS
Regulatory Instruments
It is our assessment that certain sections of the Customs Act have become out-dated in relation to
modernising customs control methods. It is recommended, that the first phase of overhauling the
current legislative framework through the two draft Bills (referring to the Customs Control Bill and the
Customs Duty Bill), be fast-tracked post the February 2010 deadline for public comment.
There is a lack of consistency in the application of the customs regulatory provisions. Section 4 of the
Customs Act is widely seen as restricting information sharing.
It is recommended that SOP‘s or
MOU‘s be formalised among the various departments or agencies (e.g. SARS, DTI, ITAC, SAPS, and
Agriculture) responsible for the implementation of the regulatory framework.
xii | P a g e
It is recommended that, with the assistance of the South African Law Reform Commission, proposals
for an amendment to the legislation be considered in order to create a presumption that incorrect
declarations are fraudulent particularly in cases of repeat offenders.
Significant fragmentation exists with regards to the administration and enforcement of customs
tariffs, for which India is cited as a good practice model.
Circumvention of the tariff as a result of preferential rates of duty in terms of trade agreements has
emerged as a problem.
To support the efficient administration and enforcement of imports
regulations, a formal MOU based on developed SOP‘s should be negotiated and formulated between
ITAC and SARS. Motor vehicle clearance system must allow for vital information to be captured and
shared with e-NaTIS, and with greater involvement of SAPS and Department of Transport. To this
end it is recommended that formalised SOP‘s be drafted to structure the co-ordination and cooperation between SARS, SAPS and the Department of Transport.
It is recommended, that proposals be considered for the creation of an Offenders‘ Register to ‗ name
and shame‘ convicted customs fraudsters, and one that is supported by blacklisting provisions. The
National Treasury‘s Register of Tender Defaulters can be used as a model for development of such a
list.
Administrative Instruments
Frequent restructuring within SARS has resulted in amended portfolios and little or no evidence of
integrated understanding of roles and responsibilities within the customs environment. This poses a
challenge to communication, co-ordination and the continuity of initiatives, resulting in project or
program fragmentation and unreasonable and costly implementation delays.
There are clearly capacity constraints within SARS to investigate customs fraud. India and Malaysia
are cited as good practice examples where the head of Customs Enforcement is at DDG level. A
recommendation is made for the appointment of a Customs Ombudsman.
The lack of computer systems and connectivity at many of the ports of entry may negate many of the
advancements in electronic developments. Furthermore, the usefulness of import statistics is limited
by the format in which they are supplied by SARS.
Some good practice examples from the
benchmarked countries are cited.
Customs officials have insufficient product knowledge to frame a reference for pricing of products
when reviewing declarations and validating values. The roll-out of the recommended Price Reference
Guidelines for identified products must be developed in cooperation with industry stakeholders and be
cognisant of international norms.
xiii | P a g e
Law Enforcement – Levels of Cooperation/Coordination amongst Enforcement
Agencies and Between Enforcement Agencies, Business and Labour
Challenges
that
impede
the
effective
recommendations for corrective action.
functioning
of
the
BCOCC
are
highlighted,
with
Also, there are indications of tension between officials of
SARS and SAPS that arise during joint operations at the ports of entry.
Level of Resourcing Of Enforcement Agencies (Sars/Itac/Saps)
A needs analysis of ports of entry should be undertaken, possibly under the auspices of the BCOCC.
This must take into account the nature and volumes of imports in order to ensure the necessary
numbers and expertise of officials to address import fraud.
Collaboration between SARS and SAPS should include establishing a dedicated joint Customs Fraud
Investigation Task Team to ensure that cases of import fraud are investigated by specialists based at
key ports of entry.
Insofar as inspection facilities at POE‘s are concerned, the recommendations of the 2008 Report of
the AG on a Performance Audit of Border Control at the SAPS must be implemented and actioned as a
matter of extreme urgency.
The initiative to establish Centres of Excellence (COE‘s) using experienced officers needs to be
spearheaded.
The SARS Customs Academy must be formally structured and established with
dedicated courses of specialisation.
It is also recommended that members of SAPS who perform
duties at the ports of entry, specifically inspections, should be trained by the Academy.
xiv | P a g e
INDEX
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A
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Y
EX
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UT
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SU
UM
MM
MA
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I
IIIN
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D
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DE
EX
X
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LLLIIIS
A
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T
A
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M
S
AIIIN
ST
NA
TO
AC
OFFF M
CR
RO
ON
MA
NY
YM
MS
S
XII
D
D
P
E
O
T
R
A
T
E
D
R
E
S
E
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R
C
H
R
E
DE
PO
ET
OR
TA
RT
AIIILLLE
T
ED
DR
RE
ES
SE
EA
AR
RC
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HR
RE
EP
1
1
INTRODUCTION AND SCOPE
1
1.1
INTRODUCTION
1
1.2
SCOPE
1
1.3
BRIEF OVERVIEW OF WORKPLAN
2
1.4
RESEARCH METHODOLOGY
2
1.5
BENCHMARKING
3
2
DEFINITIONS
4
2.1
UNDERSTANDING THE TERM „FRAUD‟ AND THE APPLICATION THEREOF FOR PURPOSES
OF THIS RESEARCH PROJECT
4
2.2
TYPE OF CUSTOMS AND IMPORT FRAUD DISCUSSED
5
2.2.1
AD VALOREM DUTIES AND TAXES
5
2.2.2
CUSTOMS FRAUD
6
2.2.3
CUSTOMS OFFENCE
6
2.2.4
COMMERCIAL FRAUDS
6
2.2.5
SMUGGLING
7
2.2.6
MIS-DECLARATION
7
2.2.7
REMOVAL-IN-BOND / REMOVAL-IN-TRANSIT FRAUD
7
2.2.8
UNDER-VALUATION
8
2.2.9
ROUND TRIPPING
8
2.2.10
COUNTERFEIT GOODS
8
3
SOUTH AFRICA RESEARCH
9
3.1
OVERVIEW OF SOUTH AFRICAN CUSTOMS ENVIRONMENT
9
3.1.1
SOUTH AFRICAN LEGISLATION
9
3.1.1.1
Customs and Excise Act And Schedules
9
3.1.1.2
International Trade Administration Act, No 71 Of 2002
10
3.1.1.3
Counterfeit Goods Act, No 37 Of 1997
10
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3.1.1.4
Merchandise Marks Act 17 of 1941
11
3.1.1.5
Draft Customs Duty Bill and Draft Customs Control Bill
11
3.1.1.6
South African Police Services Act
11
3.1.1.7
Other Legislation
11
3.1.2
SOUTH AFRICAN MULTILATERAL ARRANGEMENTS
12
3.1.3
STRUCTURE OF THE SOUTH AFRICAN CUSTOMS SERVICE BODY
14
3.1.4
THE SOUTH AFRICAN LAW ENFORCEMENT AGENCIES
17
3.1.5
LEVELS OF COOPERATION BETWEEN ENFORCEMENT AGENCIES AND RELEVANT STAKEHOLDERS
28
3.1.5.1
Border Control Operational Co-ordination Committee
28
3.1.5.2
International Trade Administration Commission
29
3.1.5.3
South African Police Services
30
3.1.6
LEVEL OF RESOURCING OF ENFORCEMENT AGENCIES
31
3.1.7
INFRASTRUCTURE CHALLENGES IDENTIFIED
32
3.1.8
INITIATIVES TO ADDRESS CUSTOMS FRAUD
33
3.2
SURVEY RESULTS
34
3.2.1
BACKGROUND
34
3.2.2
LIMITATIONS
35
3.2.3
RESULTS
35
3.2.4
SUMMARY OF KEY RESPONSE AREAS:-
35
3.2.5
SARS DASHBOARD
38
3.3
SECTOR IDENTIFICATION AND MOTIVATION
42
3.4
DAIRY
43
3.4.1
OVERVIEW OF THE INDUSTRY AND ISSUES TO CONSIDER WHEN ADDRESSING THE
PREVALENCE AND TYPES OF FRAUD
43
3.4.1.1
Introduction to the dairy sector
43
3.4.1.2
Sector role players
44
3.4.1.3
Importance of employment and investment in the sector
44
3.4.1.4
Import Statistics
45
3.4.2
CUSTOMS FRAUD RELATED ISSUES AFFECTING THE INDUSTRY
47
3.4.2.1
Introduction
47
3.4.2.2
Prevalence of customs fraud in the sector
48
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3.4.2.3
Customs tariff classification
48
3.4.2.4
Rebate provisions
50
3.4.2.5
Trade remedies
50
3.4.2.6
Other forms of Government intervention
51
3.4.3
TYPES OF CUSTOMS FRAUD IDENTIFIED
52
3.4.3.1
Mis-declaration as a specific type of import fraud identified in the dairy sector
52
3.4.3.2
Abuse of rebate provisions as a specific type of import fraud identified in the dairy sector
53
3.4.3.3
Under valuation as a specific type of import fraud identified in the dairy sector
54
3.5
RED MEAT
55
3.5.1
55
3.5.1.1
Introduction to the livestock and red meat sector
55
3.5.1.2
Sector role players
56
3.5.1.3
57
3.5.1.4
Import Statistics
57
3.5.2
58
3.5.2.1
Introduction
58
3.5.2.2
Prevalence of Customs Fraud in Sector
58
3.5.2.3
59
3.5.2.4
Rebate Provisions
60
3.5.2.5
Trade remedies
61
3.5.2.6
61
3.5.3
61
3.5.3.1
Mis-declaration as a specific type of import fraud identified in the livestock and red meat sector 61
3.5.3.2
Under-declaration of quantity and value as a specific type of import fraud identified in the
livestock and red meat sector
62
3.5.3.3
Smuggling as a specific type of import fraud identified in the livestock and red meat sector
63
3.6
FOOTWEAR
64
3.6.1
64
3.6.1.1
Introduction to the footwear sector
64
3.6.1.2
Sector role players and specific contributions to combat customs fraud
65
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3.6.1.3
66
3.6.1.4
Import Statistics
67
3.6.2
68
3.6.2.1
Introduction
68
3.6.2.2
Prevalence of customs fraud in this sector
68
3.6.2.3
68
3.6.2.4
Rebate provisions
69
3.6.2.5
Trade remedies
69
3.6.2.6
69
3.6.3
70
3.6.3.1
Counterfeiting and non-declaration of country of import as a specific type of import fraud
identified in the footwear sector
70
3.6.3.2
Under invoicing as a specific type of import fraud identified in the footwear sector
71
3.6.3.3
Smuggling as a specific type of import fraud identified in the footwear sector
72
3.7
TEXTILES AND CLOTHING
73
3.7.1
73
3.7.1.1
Introduction to the textiles and clothing sector
73
3.7.1.2
Sector role players
74
3.7.1.3
74
3.7.1.4
Import Statistics
75
3.7.2
CUSTOMS FRAUD AND RELATED ISSUES AFFECTING THE INDUSTRY
76
3.7.2.1
Introduction
76
3.7.2.2
76
3.7.2.3
77
3.7.2.4
Rebate provisions
78
3.7.2.5
Trade remedies
78
3.7.2.6
80
3.7.3
81
3.7.3.1
Counterfeiting as a specific type of import fraud identified in the textiles and clothing sector
81
3.7.3.2
Under-valuation as a specific type of import fraud identified in the textiles and clothing sector
83
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3.7.3.3
Mis-declaration of origin as a specific type of import fraud identified in the textiles and clothing
sector
3.7.3.4
84
Mis-declaration of tariff classification as a specific type of import fraud identified in the textiles
and clothing sector
84
3.8
RUBBER AND TYRES
85
3.8.1
85
3.8.1.1
Introduction to the tyre sector
85
3.8.1.2
Sector role players
85
3.8.1.3
86
3.8.1.4
Import Statistics
86
3.8.2
87
3.8.2.1
Introduction
87
3.8.2.2
87
3.8.2.3
88
3.8.2.4
Rebate Provisions
89
3.8.2.5
Trade remedies
89
3.8.2.6
89
3.8.3
90
3.8.3.1
Under-valuation as a specific type of import fraud identified in the tyre sector
90
3.8.3.2
Round-tripping as a specific type of import fraud identified in the tyre sector
90
3.8.3.3
Abuse of trade agreements (mis-declaration of origin) as a specific type of import fraud identified
in the tyre sector
3.8.3.4
91
Sale of imported second-hand tyres as a specific type of import fraud identified in the tyre sector
91
3.8.3.5
Removal-in-transit / bond abuse as a specific type of import fraud identified in the tyre secto r 92
3.8.3.6
Mis-declaration as a specific type of import fraud identified in the tyre sector
93
3.9
MOTOR VEHICLES AND COMPONENTS
94
3.9.1
94
3.9.1.1
Introduction to the motor vehicle and components sector
94
3.9.1.2
Sector role players
94
v|Page
3.9.1.3
95
3.9.1.4
Import statistics
95
3.9.2
96
3.9.2.1
Introduction
96
3.9.2.2
97
3.9.2.3
Customs Tariff Classification
98
3.9.2.4
Rebate Provisions
98
3.9.2.5
Special initiatives
99
3.9.2.6
Trade remedies
100
3.9.2.7
100
3.9.3
103
3.9.3.1
Illicit Trafficking of Motor Vehicles
103
3.9.3.2
Importing used vehicles into South Africa in contravention with legislation
104
3.9.3.3
Removal-in-transit-fraud: importation of new and used vehicle for SADC Countries through South
Africa
104
4
106
4.1
COUNTRY IDENTIFICATION AND MOTIVATION
106
4.2
CANADA – DEVELOPED COUNTRY
106
4.2.1
INTRODUCTION
107
4.2.2
CUSTOMS LEGISLATION AND REGULATIONS
107
4.2.2.1
Canada Border Services Agency Act
107
4.2.2.2
Customs Act
107
4.2.2.3
Other legislation
108
4.2.2.4
Existing Trade Agreements
108
4.2.2.5
Importation Regulations and Requirements
109
4.2.3
STRUCTURE OF CUSTOMS SERVICES BODY
110
4.2.3.1
Introduction
110
4.2.3.2
CBSA organizational structure
111
4.2.4
COOPERATION BETWEEN ENFORCEMENT AGENCIES AND RELEVANT STAKEHOLDERS WITH
REFERENCE TO ENFORCEMENT PROGRAMMES AND INITIATIVES
111
4.2.4.1
Export and Import Controls Bureau (TPI)
112
4.2.4.2
Department of Foreign Affairs and International Trade
112
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4.2.4.3
Royal Canadian Mounted Police
112
4.2.4.4
Other Government Departments (OGD) Interface
112
4.2.4.5
CFIA/ACROSS Interface
113
4.2.4.6
Customs Self Assessment Programme (CSA)
113
4.2.4.7
Partners in Compliance
114
4.2.4.8
Partners in Protection (PIP)
114
4.2.4.9
Register of Imported Vehicles Program (Transport Canada)
116
4.2.4.10
Canada Revenue Agency and Environment Canada - Hazardous waste, Wild Animal and Plant
Protection and Regulation of International and Interprovincial Trade Act
116
4.2.4.11
Free and Secure Trade (FAST)
117
4.2.4.12
The Canada-U.S. Smart Border Declaration
118
4.2.4.13
Canada-United States Cross-Border Crime Forum
118
4.2.4.14
Integrated Border Enforcement Teams (IBETs)
118
4.2.4.15
Joint Targeting Initiative (JTI)
119
4.2.4.16
Marine Trade Security
119
4.2.4.17
Container Security Initiative
121
4.2.5
121
4.2.6
PREVALENCE OF CUSTOMS FRAUD
123
4.2.7
AREAS OF CUSTOMS FRAUD AND ILLEGAL IMPORTS
124
4.2.8
CAPACITY BUILDING AND TRAINING PROGRAMMES
124
4.3
FRANCE – DEVELOPED COUNTRY
125
4.3.1
INTRODUCTION
125
4.3.2
THE EUROPEAN UNION CUSTOMS ADMINISTRATION
126
4.3.3
127
4.3.3.1
EU Legislation - 02 Customs Union and free movement of goods
127
4.3.3.2
Customs Tariffs Classification: Combined Nomenclature, Common Customs Tariff and Integrated
Tariff of the European Communities (Taric)
128
4.3.3.3
EU Trade Agreements and International Conventions – with specific reference to China
129
4.3.4
STRUCTURE OF FRENCH CUSTOMS SERVICES BODY
132
4.3.4.1
Introduction
132
4.3.4.2
Employment of staff:
133
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4.3.5
133
4.3.5.1
Enhancing police and customs cooperation in the European Union
134
4.3.5.2
Police co-operation
135
4.3.5.3
Customs Cooperation
138
4.3.5.4
Progressing Towards Effective Cooperation
139
4.3.6
140
4.3.6.1
French Customs‘ Equipment
140
4.3.6.2
EU view on detection technologies
141
4.3.7
142
4.3.8
AREAS OF CUSTOMS FRAUD AND ILLEGAL IMPORTS IN THE EU
144
4.3.9
INTELLIGENCE AND ENFORCEMENT ORIENTED PROGRAMMES AND INITIATIVES
145
4.3.9.1
The role of customs in the integrated management of external borders
145
4.3.9.2
Communication of 24 April 2003 from the Commission to the Council, European Parliament and
the European Economic and Social Committee on the role of customs in the integrated
management of external borders [COM(2003) 452 final - Official Journal C 96 of 21.4.2004]
145
4.3.10
147
4.3.10.1
e-Learning courses in Customs and Taxation
148
4.3.10.2
Taxation and Customs Training Interactive Campus (TACTIC)
148
4.4
MALAYSIA – DEVELOPING COUNTRY
149
4.4.1
INTRODUCTION
149
4.4.2
150
4.4.2.1
Customs Act, 1967
150
4.4.2.2
Excise Act, 1976
150
4.4.2.3
Sales Tax Act, 1972
150
4.4.2.4
Goods Vehicle Levy Act, 1983
150
4.4.2.5
Wind Fall Profit Levy Act 1998
151
4.4.3
151
4.4.3.1
National Law Enforcement Agencies and Level of Resourcing
151
4.4.3.2
Royal Malaysian Customs
151
4.4.3.3
Structure of Customs Services Body
152
4.4.3.4
Continuous Review
152
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4.4.4
COOPERATION BETWEEN ENFORCEMENT AGENCIES AND RELEVANT STAKEHOLDERS WITH
REFERENCE TO ENFORCEMENT PROGRAMMES AND INITIATIVES
153
4.4.4.1
Anti-Corruption Initiatives
153
4.4.4.2
Licensed Bonded Warehouse
153
4.4.5
154
4.4.6
155
4.4.6.1
False declaration of goods
155
4.4.6.2
Subsidies by the Malaysian Government leads to smuggling and customs fraud
155
4.4.7
156
4.4.7.1
Royal Malaysian Customs Academy
156
4.4.7.2
Harmonised Commodity Description and Coding System
156
4.5
INDIA – DEVELOPING COUNTRY
158
4.5.1
INTRODUCTION
158
4.5.2
159
4.5.2.1
Customs Act, 1962
159
4.5.2.2
Customs Tariff Act, 1975
159
4.5.2.3
Commencement of Customs Tariff (Amendment) Ordinance, No 1 of 2003
159
4.5.3
159
4.5.3.1
Board of Excise and Customs
159
4.5.3.2
The detailed charter of functions of DGCEI
160
4.5.3.3
Directorate of Revenue Intelligence (DRI)
161
4.5.4
162
4.5.5
162
4.5.6
163
4.5.7
164
4.5.7.1
Clandestine Removal
166
4.5.7.2
Misuse of Exemption Notifications
166
4.5.7.3
Misuse of CENVAT
166
4.5.7.4
Undervaluation
167
4.5.7.5
Misclassification
167
4.5.7.6
Duty-Evasion Cases Detected by DRI (Scheme Wise)
167
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4.5.7.7
Commercial Frauds
168
4.5.7.8
IEC Frauds
168
4.5.7.9
Country of Origin Frauds
169
4.5.7.10
Undervaluation/ Overvaluation
169
4.5.7.11
Misuse of SEZ scheme
171
4.5.7.12
Misuse of EPCG Scheme
172
4.5.7.13
Containerised Cargo Frauds at ICD, Tuglakabad
172
4.5.8
INTELLIGENCE AND ENFORCEMENT ORIENTED PROGRAMS AND INITIATIVES
173
4.5.8.1
Rewards System
173
4.5.8.2
ICEGATE
173
4.5.8.3
Customs Risk Management System
174
4.5.9
CAPACITY BUILDING AND TRAINING PROGRAMS
175
5
GAP ANALYSIS
177
5.1
CRITERIA FOR BENCHMARKING
177
5.2
ABRIDGED RESULTS OF THE GAP ANALYSIS PLANNING SESSION
177
5.3
GAP IDENTIFICATION AND RECOMMENDATIONS
177
5.3.1
REGULATORY INSTRUMENTS
178
5.3.1.1
Legislation
178
5.3.1.2
Administration of Customs Tariff, including Rebate Provisions (and Rules of Origin)
182
5.3.1.3
ITA Act – Import Regulations
184
5.3.1.4
Compliance Strategy
185
5.3.1.5
Standards on Authorised Economic Operators (AEO)
186
5.3.1.6
Unique Consignment Reference (UCR) number
187
5.3.1.7
Penalties and Sanctions
188
5.3.2
ADMINISTRATIVE INSTRUMENTS
190
5.3.2.1
190
5.3.2.2
Programmes/Systems/Initiatives to Facilitate Customs Operations
191
5.3.3
LAW ENFORCEMENT – LEVELS OF COOPERATION/COORDINATION AMONGST ENFORCEMENT
AGENCIES AND BETWEEN ENFORCEMENT AGENCIES, BUSINESS AND LABOUR
195
5.3.3.1
Formal Co-Operation Arrangement between Domestic Enforcement Agencies
195
5.3.3.2
Multi-Sectoral Forum for Customs
197
5.3.3.3
Mutual Administrative Agreements
198
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5.3.4
LEVEL OF RESOURCING OF ENFORCEMENT AGENCIES (SARS/ITAC/SAPS)
200
5.3.4.1
Visibility at Ports of Entry
200
5.3.4.2
Staffing at Ports of Entry
200
5.3.4.3
Facilities at Ports of Entry, including Inspection Equipment
202
5.3.4.4
Training and Capacity Building
205
6
SOURCE LIST
207
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LIST OF MAIN ACRONYMS
ACRONYM
DESCRIPTION
BCOCC
Border Control Operational Coordinating Committee
BUSA
Business Unity South Africa
CBCU
Customs Border Control Unit
CPG
Counterpart Group
DAFF
Department of Agriculture, Forestry and Fishery
DoH
Department of Health
DTI
Department of Trade and Industry
EFTA
European Fair Trade Association
EU
European Union
GATT
General Agreement on tariffs and Trade
IDC
Industrial Development Corporation
ITAC
International Trade Administration Committee
MPO
Milk Producers Organisation
NPA
National prosecuting Authority
POE
Port of Entry
RPO
Red Meat Producers Organisation
SACTWU
South African Textile workers Union
SACU
Southern African Customs Union
SADC
Southern African Development Community
SAFA
South African Feedlot Association
SAPS
South African Police Service
SARS
South African revenue Service
SAFLIA
South African Footwear and Leather Industries Association
WCO
World Customs Organisation
WTO
World Trade Organisation
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DETAILED RESEARCH REPORT
1
INTRODUCTION AND SCOPE
1.1
INTRODUCTION
The IDC contracted the Consortium to conduct a comprehensive research into various
areas of customs fraud and illegal imports, with a view to identifying mechanisms and
structures which could be utilised to combat the current unacceptably high levels of fraud
or illegal importation in various identified sectors.
The period under review for obtaining statistical information was a three year calendar
period, from 1 January 2006 – 31 December 2009.
1.2
SCOPE
The scope of the research project consists of:
4)
A critical review of existing practice particularly relating to:
Law enforcement – levels of cooperation/coordination amongst enforcement
agencies and between enforcement agencies and business and labour;
Level of resourcing of enforcement agencies (SARS / ITAC / SAPS); and
The prevalence of customs fraud and illegal imports in industrial goods
sectors.
5)
Review of international best practice to serve as a benchmark against which
options for improvement in the South African system can be measured
including co-operative structures amongst the enforcement agencies and
between the enforcement agencies and Business and Labour.
6)
Options for improvement of the current system including but not limited to:
Regulatory instruments (including penalties and sanctions);
Co-operation amongst enforcement agencies and between enforcement
agencies and Business and Labour; and
Administrative instruments.
1|Page
1.3
BRIEF OVERVIEW OF WORKPLAN
The following deliverables were agreed on and is reflected in the workplan:
PHASE
1
2
3
4
DELIVERABLE
1)
Approved workplan
2)
Finalisation of a list of resources
1)
Sourcing and extracting information
2)
Feedback on interviews held
3)
General feedback on status of research project
4)
Results of GAP brainstorming session
1)
GAP analysis completion
2)
Workshop planning
1)
Final report
This document is the final report, representing the combined deliverables for phases 1 – 4.
1.4
RESEARCH METHODOLOGY
As a result of thenature and scope of the research project, the Consortium proposed that a
combination of quantitative and qualitative methods be utilised. This approach is more
effective in diagnosing fraud than relying on findings from a single assessment only.
The Consortium proposed utilising a range of methods to uncover multiple perspectives
and probe into a variety of sectors. We developed a phased structure and approach in the
interests of efficiency:
Monitor broad trends through existing indicators;
Complete quick checklists that identify areas of greatest vulnerability and risk; and
Prioritise in-depth diagnostic activity, in particular sectors or at particular levels of
government.
2|Page
We utilised the following methods in our research project:
Desktop reviews;
Individual interviews;
Surveys;
Focus groups; and
Case studies.
1.5
BENCHMARKING
The research into the two developed and two developing countries were used to conduct
the benchmarking exercise. We have experienced significant constraints in the research
into specifically France, India and Malaysia – despite daily requests to these Consulates
and various other institutions; we received little or no response. As a result we limited our
country research to mostly desktop (internet) reviews, with the exception of Canada.
One drawback of conducting desktop research as described herein, is that information
regarding the programs and initiatives for these countries which was designed for
combating and eradicating customs fraud, is only available on a very high level.
As a result of the limited information available on the countries, the Consortium elected to
include international best practices as part of the benchmarking exercise. For this purpose,
specific reference was made to the Customs Green Paper by SARS (dated 2007, with
updates from 2009).
3|Page
2
DEFINITIONS
2.1
UNDERSTANDING THE TERM „FRAUD‟ AND THE APPLICATION THEREOF
FOR PURPOSES OF THIS RESEARCH PROJECT
The
legal definition
of
fraud
is:
‗The unlawful and intentional making of a
misrepresentation which causes actual prejudice or which is potentially prejudicial to
another‘.1 Potential prejudice is thus also sufficient to constitute the completed act of
fraud – actual prejudice is not required. Fraud can be constituted by the commission of an
act or omission. Fraud by commission occurs when a misrepresentation is being made by
a person stating or doing something which constitutes the misrepresentation. Fraud by
omission occurs when a person has a duty to do or say something, but refrains from doing
so, with the result that a misrepresentation is made by failure of the person to act on
his/her duty to say or do something.
Fraud is a common law criminal offence, and the Criminal Law Act, No 105 of 1997, read
with the Criminal Law Amendment Act (Sentencing) No 38 of 2007, regulates the
imposition of discretionary minimum sentences for certain serious offences, inter alia fraud
– if a person is convicted of fraud to a minimum value of R100,000.00 and there is no clear
and compelling circumstances to do otherwise, the presiding officer has no option but to
sentence the convicted individual to 15 years imprisonment.
Legislation such as the Prevention and Combating of Corrupt Activities Act 12 of 2004 (also
known as PRECCA or PCCA) is well drafted and comprehensive. It provides for adequate
sanctions, statutes of limitations and definitions of white collar crime offences.
indicates the seriousness with which the government considers fraud.
corruption is on the increase internationally.
This
Fraud and
Challenging economic circumstances
worldwide with added pressure to companies to retain profit margins to satisfy
shareholders, or greed by individuals; continues to be a driving factor for fraudulent and
corrupt practices.
What has become evident during our research (information obtained during direct
interviews with law enforcement officials) is that there is not always an adequate
understanding / appreciation of the difference between non-compliance with legislation or
regulations and the criminal offence of fraud; or the difference in effect that the two has.
1
Snyman, CR, Criminal law, Fourth Edition, 2002, p 520.
4|Page
One of the objectives of this study is to address the issue of job losses (employment) and
threats to investment due to ‗fraud in customs and imports‘. The Consortium‘s approach is
that the various cases or causes of non-compliance with legislation / regulations should
also be considered when interpreting cases of ‗fraud‘‘, even though these cases may not
comply with the legal definition of the offence of fraud.
Information obtained from industry representatives and law enforcement officials indicate
that the companies which make themselves guilty of continued instances of noncompliance with regulations (e.g. under-declaration of the value of consignments which
results in lower import duties being paid) often fall back on excuses such as inexperienced
employees, or lack of knowledge as reason for the non-compliance.
Should one such
consignment be seized by Customs officials, it is regarded by the importing company as
negligible, since it is common knowledge that Customs does not have the capacity to
inspect all containers entering South Africa.
The motivation to include issues of non-compliance in the broader definition of import
fraud, is supported by the loss in revenue for the South African Revenue Service due to
what appears to be intentional non-compliance, and will be reflected clearly on our review
of the case studies.
2.2
TYPE OF CUSTOMS AND IMPORT FRAUD DISCUSSED
Various types of customs fraud were listed in the terms of reference.
Through our
research it became clear that the various, identified types of customs fraud can be
classified under specific headings.
For various customs fraud terms, no formal definition could be referenced. As a result,
some of the definitions below were compiled based on the practical examples discussed
and the information obtained from Business, Labour and Government.
The following definitions are relevant for the purpose of this research (please note that
further definitions may be added during the remainder of this project):
2.2.1
AD VALOREM DUTIES AND TAXES
Duties and taxes which are calculated on the basis of value.2
2
http://www.aseansec.org/economic/customs/glos_wco.htm
5|Page
2.2.2
CUSTOMS FRAUD
Any act which a person deceives, or attempts to deceive, the Customs and thus evades, or
attempts to evade, wholly or partly, the payment of import or export duties and taxes or
the application of prohibitions or restrictions laid down by the statutory or regulatory
provisions, enforced or administered by the Customs administrations or obtains, or
attempts to obtain, any advantage contrary to such provisions, thereby committing a
Customs offence.3
The WCO glossary contains the following notes on the above definition: 4
Notes:
1.
In some countries, deceiving Customs constitutes Customs fraud only when it is
international.
2.
Deceit through an act of omission may or may not be regarded as Customs fraud.
3.
In some countries, certain offences against statutory and regulatory provisions
enforced and administered by Customs administrations on behalf of other
government agencies are not considered as Customs fraud.
2.2.3
CUSTOMS OFFENCE
Any breach, or attempted breach, of Customs law. 5
2.2.4
COMMERCIAL FRAUDS
The WCO Working Group on Commercial Frauds refers to commercial frauds to cover acts
of commission or omission, contravention of statutory or regulatory provisions governing
import, export and any other allied acts with the intention to:
(a)
evade or attempt to evade payment of duties;
(b)
circumvent any prohibition or restriction;
(c)
receive or attempt to receive refund of taxes without proper entitlement or in
excess of entitlement; and
(d)
3
4
5
to garner other benefits under export promotion schemes.
6|Page
2.2.5
SMUGGLING
The WCO glossary defines smuggling as ―Customs offence consisting in the
movement of goods across a Customs frontier in any clandestine manner,
thereby evading Customs control‖;6
More specifically, it is the entering of a product into South Africa by not using a
registered or approved port of entry, as well as not being in possession of any
legal import documentation is considered to be smuggling;
Non-declaration (where no product is declared at port of entry) is also a form of
smuggling.
2.2.6
MIS-DECLARATION
Mis-declaration of tariff code: product falsely declared e.g. cut-rag as
unmanufactured tobacco;
Mis-declaration of end destination: Product taken to destination other than the
declared end destination;
Origin mis-declaration: intentionally concealing the origin of an imported or
exported commodity.
‗Country of origin‘ is defined in the WCO glossary as ―
Country in which the goods have been produced or manufactured, according to the
criteria laid down for the purposes of application of the Customs tariff, of
quantitative restrictions or of any other trade‖7;
Abuse of regional trade agreements: linked to origin fraud.
2.2.7
REMOVAL-IN-BOND / REMOVAL-IN-TRANSIT FRAUD
Product declared for in-transit removal to other country but kept in South Africa
and sold in the local market;
This includes diversion/acquittal fraud, which happens when documentation is
provided to SARS that falsely indicates that the product has been exported
(referred to as a ghost export, then the product sold in the local market;
VAT fraud: another form of acquittal fraud is when false documentation is
submitted to indicate that product was exported (ghost exports), but no product
was exported and VAT is claimed back illegally.
6
7
7|Page
2.2.8
UNDER-VALUATION
Under invoicing: for example incorrect declaring of weight, quantity or value,
and invoices differing from the bill of lading. Product weight/quantity/price is
under declared in order to minimize the payment of import duty and VAT. Forms
part of under-evaluation;
Other valuation problems: price/value manipulation by inflating insurance,
freight and handling costs – for example non-declaration of costs, inflated costs
and declaring incorrect quantities. Forms part of under-valuation;
Split invoicing – splitting the value of 1 invoice into various invoices, in order to
declare lower values, with the result that full duties and VAT are avoided. Forms
part of under-valuation.
2.2.9
ROUND TRIPPING
Product is exported to a country (neighbouring country) and then smuggled back into the
RSA and sold in the local market. An example: exporting motor vehicles to a neighbouring
country. VAT fraud is committed when the vehicles are exported, and on selling the
vehicles in the local market after smuggling it back into South Africa, the import / seller
enjoys a price advantage above other local companies, who cannot compete with the low
prices offered by such importers.
2.2.10
COUNTERFEIT GOODS
Counterfeit branded goods imported as unbranded goods to avoid declaring licence fees
applicable to branded goods.
8|Page
3
SOUTH AFRICA RESEARCH
3.1
OVERVIEW OF SOUTH AFRICAN CUSTOMS ENVIRONMENT
Various key elements of South African customs legislation, regulation, authority and
stakeholders have been assessed and where available, organisations and individuals have
been engaged. This assessment forms a critical framework against which to commence the
benchmarking and gap analysis.
Below we provide detail of important components of the applicable legislation, regulation,
authority and stakeholder engagement; incorporating resourcing and other development
initiatives for consideration.
3.1.1
SOUTH AFRICAN LEGISLATION
The legislative environment that regulates the South African Customs environment is
complex and extensive. Key elements against which consideration and application have
been made within this research project include the following:-
3.1.1.1
Customs and Excise Act And Schedules
The Customs and Excise Act and supporting schedules regulate the importation into and
exportation out of the RSA of goods and matters incidental thereto. Provisions include:
Registration and compliance checks;
Licensing approval and compliance checks;
Passenger assessment;
Check goods declaration, refunds and drawbacks;
Check cargo information;
Detention, seizure and release;
Inspection of goods, people and craft;
Border control function.
The act further enforces quotas as outlined in section 6 of the ITAC Act.
Recent
amendments to the Act have provided for the licensing of all port, terminal and similar
operations whether private or public entities.
9|Page
Through the application of the Act, customs officers are granted wide and extensive
powers including the power to enter premises, board vehicles, search goods, persons
and vehicles and detain and seize goods. The Act is currently being amended to allow
certain customs officers to bear firearms and arrest persons
SARS performs an agency role and may, for the purposes of any law other than the Act
or at request of a member of the police force or the authority administering such law,
detain any goods while such goods are under customs control.
3.1.1.2
International Trade Administration Act, No 71 Of 2002
The Act addresses import and export control permits, rebate permits and detention by
SARS Customs. It also empowers the Minister of Trade and Industry to regulate imports
and exports. The importation and exportation of certain goods are either prohibited or
restricted.
The International Trade Administration Commission (ITAC) is empowered to enter into
an agreement with any regulatory authority or organ of state to co-ordinate and
harmonise their respective functions with regard to international trade matters, in order
to ensure the achievements of the objects of this Act.
3.1.1.3
Counterfeit Goods Act, No 37 Of 1997
The Act creates an inspectorate and provides for search and seizure, as well as
detention and seizure by SARS Customs. The Act contains measures aimed against the
trade in counterfeit goods in order to protect intellectual property rights. Police officials
are also designated as inspectors in terms of the Act.
Customs officers are empowered to seize and detain counterfeit goods imported into or
entering into the Republic. The Customs Act contains empowering provisions in respect
of customs officers‘ powers and duties in connection with counterfeit goods.
The Act was recently amended to consolidate all provisions that apply to customs
officers in relation to counterfeit goods which reside into the Customs Act. The Act
further addresses requirements in relation to the WTO‘s Trade-Related Aspects of
Intellectual Property Rights (TRIPS).
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3.1.1.4
Merchandise Marks Act 17 of 1941
The Act creates an Inspectorate which provides for search and seizure, as well as
statistics in relation to detained items by SARS Customs.
It further addresses
international obligations in terms of the Paris Convention for the Protection of Industrial
Property.
3.1.1.5
These bills were published on 30 October 2009. The Draft Customs Duty Bill provides for
the levying, payment and recovery of customs duties on goods imported into or
exported from South Africa. It has been referred to as a ‗tax levying act‘ which will rely
on the proposed Customs Control Act for its implementation.
These two bills and the amendments it may bring about will be considered and
discussed during the gap analysis process.
3.1.1.6
Besides the Constitution, numerous other acts and the common law, the South African
Police Services Act also provides for powers, functions and duties of the South African
Police.
Any member of the police may for the purpose of control over the illegal movement of
people or goods across the borders of the Republic, without a warrant search any
person, premises, other place, vehicle, vessel or aircraft, or any receptacle of whatever
nature found within a prescribed geographical area and seize anything found in
possession of such person or upon or at or in such premises, other place, vehicle,
vessel, aircraft or receptacle - refer Section 13(6).
The Act also empowers the police to set up a road block on any public road in a
particular area.
3.1.1.7
Other Legislation
The legislation listed below are important for guidance in relation to the various sectors
reviewed, as well as framing an understanding of the customs fraud environment and
the applicable legislative environment in addressing elements of non-compliance, fraud
and corruption:
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Agricultural Product Standards Act, 1990;
Agriculture Pest Act, No 36 of 1983;
Animal Diseases Act, No 35 of 1984;
Foodstuffs, Cosmetics and Disinfectants Act, No 54 of 1974;
Livestock Improvement Act, 1977;
Criminal Procedure Act, No 51 of 1977;
Copyright Act, No 98 of 1978;
Merchandise Marks Act, No 17 of 1941;
National Ports Act, No 12 of 2005;
Civil Aviation Authority Act, 1998;
Airports Company Act, No 44 of 1993;
Cross Border Road Transport Act, No 4 of 1998;
Maritime Safety Authority Act, No 5 of 1998;
Merchant Shipping Act, No 57 of 1951;
Currency and Exchange Act, No 9 of 1963;
Immigration Act, No 13 of 2002;
The South African Police Service Act, No 68 of 1995;
Marine Living Resources Act, No 18 of 1998;
National Environmental Management Act, No 107 of 1998; and
Standards Act, No 29 of 1993.
3.1.2
SOUTH AFRICAN MULTILATERAL ARRANGEMENTS
South Africa as a founding member of the General Agreement on Tariffs and Trade of
1947 (GATT), and participates in a number of preferential trade relationships, both
regional and bilateral.
South Africa is an active member of the World Trade
Organisation (WTO). As a member, South Africa is committed to a process of reducing
tariff and other barriers to trade.
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The Southern African Customs Union (SACU) is a long-standing multilateral
agreement involving South Africa, Botswana, Lesotho, Namibia and Swaziland. The money
collected by Customs and Excise through tariffs on imports into SACU is distributed
between SACU members according to a revenue-sharing formula. South Africa actively
participates in the Southern African Development Community (SADC), comprising 14
sub-Saharan African countries, allowing access to a market of approximately 140-million,
which is expected to grow at an annual rate of around 3%.
Development and Co-operation agreements, including preferential trade, with and the
European Union (EU) are also in place.
Significant attention has been placed on agreements for greater South/South co-operation.
The move to establish trade relations with Mercusor via a free trade agreement with
Brazil, and also with India, is top of the government's export-oriented trade agenda.
This will facilitate greater trade with South America and the East.
In addition to the above, the following deserves mentioning:
General Trade Agreements - allowing for Most Favoured Nation (MFN) tariff
treatment, which is the global minimum standard for international trade relations
as established under the World Trade Organisation (WTO);
Free Trade Agreements - South African Development Community (SADC), and
European Union (EU), named the SA-EU Trade Development Co-operation
Agreement.
Currently exploring free trade agreements with Mercosur, EFTA,
India, China, Nigeria and possibly the USA;
The European Fair Trade Association (EFTA) is an association of eleven Fair Trade
importers in nine European countries. Its aim is to support member organizations
in their work encourage cooperation and coordination. It facilitates the exchange
of information and networking and creates conditions for labour division and
identifies and develops joint projects through organising meetings of members and
by circulating information.
The EFTA Maintains a database of EFTA suppliers,
called Fairdata, which contains details on suppliers and their products;
Preferential Trade agreements - South Africa is accorded generalised system of
preferences (GSP) status by European Union countries as well as Canada, Czech
Republic, Hungary, Japan, Norway, Switzerland and the US;
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The Africa and Growth Opportunity Act (AGOA) was signed into law on 18 May
2000 as Title 1 of the US's Trade and Development Act of 2000. The primary
aim of AGOA is the facilitation of the integration of Africa into the global
economy and the offering of tangible incentives to the countries as a quid pro
quo for opening up economies and embracing a free-market economy. A key
benefit is the provision for duty-free treatment and quota-free access without
limit to the US market for textile and apparel products made in eligible SubSaharan Africa (SSA) countries from US fabric, yarn and thread.
AGOA is
however not without limitations – it is not a contractual agreement, therefore
beneficiary countries do not have legal rights under the law and the status of
individual countries is subject to an annual review.
3.1.3
STRUCTURE OF THE SOUTH AFRICAN CUSTOMS SERVICE BODY
Key role players and enforcement agencies that play a pivotal role in the customs
service environment have been identified and are detail below. The various roles of
these institutions and bodies are assessed later in this report when addressing the levels
of co-operation and development initiatives. These engagements and reviews (which
are ongoing) will frame important references in the benchmarking and gap analysis
reviews.
ROLE PLAYER
SARS
ROLE PERFORMED
The South African Revenue Service (SARS) is responsible for the designation of
a specific port of entry that may be used for the import and export of goods, as
well as for the administrative control and levying of duties and taxes on
imported and exported goods.
BCOCC
The Border Control Operational Coordinating Committee (BCOCC) is the
custodian for strategic management of the border environment, and in
response to this has developed a National Integrated Border Management
Strategy (NIBMS), which has not been implemented to date.
DoH
The Department of Health (DoH) controls and regulates cross-border
movement of medicaments and other health care products; prevents and
controls cross-border transmission of contagious communicable diseases; and
mitigate any health risks associated with cross-border movement
DoA
The Department of Agriculture regulates the importation of animals; plants,
their products and other regulated articles that can carry pests, diseases and
other bio-security threats which could harm South African agricultural
industries, the environment and society.
NPA
Transnet National Ports Authority (NPA) is the custodian of the country‘s
primary trading hubs, managing the most vital conduits of the country‘s
14 | P a g e
ROLE PLAYER
ROLE PERFORMED
imports and exports. Eight of the country‘s major seaports are controlled and
managed by the NPA. It is responsible for the administration of seaports; the
Airports Company of South Africa regulates activities at airports while the Cross
Border Transport Agency regulars cross border road transport.
SAPS
The South African Police Services (SAPS) is responsible for the prevention and
detection of cross-border crime and border line control.
It also performs
functions on an agency basis for the Department of Home Affairs and SARS
(Customs and Excise).
DoT
The Department of Transport regulates the movement of vessels, craft and
vehicles in and out of the country
DTI
The Department of Trade and Industry (DTI) formulates import and export
policy that is administered by SARS – Customs
NIA and SASS
The National Intelligence Agency (NIA) and the South African Secret Service
(SASS) collect, collate and analyse information on security threats posed by
movement of people and goods across international borders
DPW
The Department of Public Works (DPW) manages the provision and
maintenance of accommodation (operational and residential) and required
infrastructure in order to support the border control operations.
DEAT
The Department of Environmental Affairs and Tourism (DEAT) regulates and
monitor
cross-border
movement
of
tourists
within
the
Trans-Frontier
Conservation Areas (TFCA‘s); indigenous plants and animals; and hazardous
and dangerous materials.
Parastatals and
Parastatals and regulatory bodies with an interest in border management are:
regulatory bodies
with an interest
in border
management
ACSA: managing all commercial airport infrastructure and security
ATNS: regulating the airspace
Transnet Group: managing infrastructure and security at sea ports
15 | P a g e
In addition the following international obligations exist within the customs
environment:
ROLE PLAYER
IMO
ROLE PERFORMED
The International Maritime Organisation (IMO) is a specialised agency of
the UN.
The International Ship and Port Facility Security (ISPS) Code is an
amendment to the IMO‘s Safety of Life at Sea (SOLAS) Convention.
The ISPS Code prescribes responsibilities to governments, shipping companies,
shipboard personnel, and port/facility personnel to ―detect security threats and
take preventative measures against security incidents affecting ships or port
facilities used in international trade‖.
The Department of Transport has given effect to our international obligation by
drafting Merchant Shipping (Maritime Security) Regulations in terms of the
Merchant Shipping Act.
ICAO
The International Civil Aviation Organization (ICAO) is a specialized
agency of the UN.
It was established in terms of the Convention on
International Civil Aviation. The Convention establishes rules of airspace, aircraft
registration and safety, facilitation, and details the rights of the signatories in
relation to air travel.
The South African Civil Aviation Authority has recently proposed regulations in
respect or air cargo security which are in line the requirements of the
Convention.
Kyoto
Convention
The Kyoto Convention came into force in 1974 with the aim of simplifying and
harmonising customs
procedures
in order to facilitate and
encourage
international trade.
The original Convention has been revised to ensure that it meets the current
demands of international trade and to form the basis of an international blue
print for modern and efficient customs procedures in the 21st century.
Contracting parties are obliged to bring the Standards, Transitional Standards
and recommended Practices of the Convention they have accepted into force
nationally.
CITES
The Convention on International Trade in Endangered Species of Wild
Fauna and Flora (CITES) was entered into force on 1 July 1975. The aim of
the Convention is ensure that international trade in specimens of wild animals
and plants does not threaten their survival.
It accords varying degrees of protection to more than 30,000 species of animals
and plants, whether they are traded as live specimens, fur coats or dried herbs,
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ROLE PLAYER
CBTA
ROLE PERFORMED
Cross-Border Transport Agreements
The Minister of Transport is authorized in terms of the Cross-Border Roads
Transport Act to conclude road transport agreements with other states.
The Cross-Border Transport Agency (CBTA) established in terms of the Act
regulates the transport market in accordance with bilateral and multi-lateral
Cross-Border Transport Agreements.
3.1.4
THE SOUTH AFRICAN LAW ENFORCEMENT AGENCIES
The various enforcement agency structures, resourcing, and protocols will frame an
important component of the benchmarking and gap analysis to be conducted.
All
agency services play an important role in the overall management and enforcement of
customs strategy and policy.
We have engaged with a number of role-players within the enforcement agencies
(SAPS, ITAC and SARS) and have canvassed information which will frame a key
component of the benchmarking and gap analysis that will be conducted when
assessing the South African practices against those of the benchmarked countries and
application within the various sectors.
Inputs received from SARS form the bulk of the information which will be used for the
benchmarking and gap analysis. The balance of the agencies are limited in application
within the framework of customs controls and in the case of SAPS, we experienced
limited support and guidance on applied protocols in the context of customs fraud. The
following detail from the associated agencies will be incorporated into the benchmarking
and gap analysis to be conducted:
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ORGANISATONAL UNIT
INFORMATION AND / OR DATA FOR INCLUSION IN THE
BENCHMARKING AND GAP ANALYSIS
SAPS
The South African Police Services (SAPS) is responsible for the prevention and detection of cross-border crime
and border line control. It also performs functions on an agency basis for the Department of Home Affairs
and SARS (Customs and Excise). Under the roles of Head of Protection and Security Services and the Head of
Ports Entry, three distinct National Section Head units have been established with oversight of the air, sea and
land ports. Each of these units is divided into Provisional and Unit Commanders and categorized (A-D) in
accordance with the size of the port.
Legislation that governs the operations of SAPS at the ports of entry include:
South African Police Services Act 68 of 1995;
Customs and Excise Act of 1964;
Immigrations Act of 2002;
Explosives Act of 2003; and
Inter-Governmental Relations Framework Act 13 of 2005.
In respect of the air modality (particularly relevant to OR Tambo International) SAPS have inspection
teams operating under the auspices of the Cargo Crime Combating Unit. No specialised investigators of
commercial crime are however stationed at ports of entry and cases are referred to the Commercial Crime
units for investigation. The National Ports Authority and the South African Police Service concluded an
MOU in November 2007, in order to:
i.
Ensure the effective deployment of SAPS personnel at all South African sea ports;
ii.
Integrate SAPS and TNPA roles that will result in safe and secure sea ports in South Africa;
iii.
Ensure joint implementation of an optimized policing and security strategy at the South African sea
ports;
iv.
Co-ordinate the performance and minimize the duplication of functions between SAPS and TNPA
personnel in the sea ports; and
v.
Enhance commercial operations of the South African sea ports.
An MOU was established between SAPS and SARS in 2008. This however remains unsigned.
There is a basic border control course that new SAPS port of entry personnel are taken through. No
specific customs related training is conducted short of ad-hoc industry specific training.
Comment: We have to date not been successful in securing feedback and input outlining infrastructure
and survey feedback from the SAP. We are continuing in our attempts to obtain, analyse and include
relevant information on the SAPS where this is provided.
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ORGANISATONAL UNIT
ITAC
Import and Export Control
ITAC was established through an Act of Parliament, the International
Trade Administration Act, No 71 of 2002 which came into force on 1
June 2003.
The aim of ITAC, as stated in the Act, is to foster economic growth and
development in order to raise incomes and promote investment and
employment in South Africa and within the Common Customs Union
Area by establishing an efficient and effective system for the
administration of international trade subject to this Act and the
Southern African Customs Union (SACU) Agreement. The core functions
are:
Customs tariff investigations;
Trade remedies; and
Import and export control.
The ITA Act makes provision for a Chief Commissioner who serves as
the Chief Executive Officer directly accountable to the Minister of Trade
and Industry. The Chief Commissioner is assisted by a Deputy Chief
Commissioner and a maximum of ten Commissioners who can be
appointed to serve on a full-time or part-time basis.
Customs Tariff Investigations
The following types of applications for amendment to customs tariffs
are handled by ITAC:
Increase in customs duty to provide assistance to SACU
industries to improve international competitiveness;
Reduction in the customs duty on imported products to reduce
the cost of production;
Rebate of the customs duty on products that are not available
in the SACU for manufacturing purposes;
Rebate of the duty of inputs used in exports (470.03) - rebate
of the duty on products imported for the manufacture,
processing, finishing, equipping or packing of products for
export;
Refund of the duties paid on inputs used in export (521.00)
drawback of the duty on products already imported with duty
paid for the manufacture, processing, finishing, equipping or
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ORGANISATONAL UNIT
packing of products for export;
Issuing of rebate permits in terms of The Motor Industry
Development Programme (MIDP);
Administration
of
the
Textile
and
Clothing
Industry
Development Programme (TCIDP). The objective of the TCIDP
is
to
influence
and
encourage
textile
and
clothing
manufacturers to compete internationally. Specialization in
export products is encouraged whilst the participant‘s domestic
product range can be broadened by importing additional goods
duty free, using the duty credit certificate. Participation in the
TCIDP is linked to a Training and Development Requirement.
Trade Remedies
The following types of applications for trade remedies are handled by
ITAC:
Action against dumping (Anti-Dumping Investigations).
Protection for SACU industry against unfair trade practices
where foreign producers export their products to the SACU at
prices lower than their domestic selling prices, thereby causing
material injury to the SACU industry;
Action
against
investigations).
subsidised
Protection
exports
for
SACU
(Countervailing
industry
against
products imported at prices that are subsidised by the
government of the exporting country, thereby causing material
injury to the SACU industry;
Safeguard Action. Investigate a surge of imports that results
in serious injury to the SACU industry;
Interim review of the anti-dumping or countervailing
duty. To review the anti-dumping or countervailing duty to see
whether it is adequate to remove the injury caused by dumping
or subsidised exports and to amend the duty where injurious
dumping/subsidised exports no longer take place;
Sunset review of duties in place for five years. To
determine whether any anti-dumping or countervailing duty
that has been in place for five years needs to be continued, i.e.
whether there will be a continuation or recurrence of injurious
dumping or injurious subsidised exports if the duty were to be
removed; and
New shipper reviews. Exclusion of new exporters from
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ORGANISATONAL UNIT
countries against which an anti-dumping or countervailing duty
were imposed from paying anti-dumping duties, where such
exporters can prove that they did not export the product in
question to SACU during the original investigation period.
Import and Export Control
The International Trade Administration Act makes provision for
control, through a permit system, of the import and export of goods
specified by regulation. The primary function of this directorate is the
administration
of
the
provisions
of
the
International
Trade
Administration Act (Act 71 of 2003) with regard to the issuing of
import and export permits in terms of Section 6 of the Act and
investigations and enforcement in terms of part E of the Act.
SARS
SARS is the custodian of the customs process and responsible for the implementation of customs tariff,
trade agreements and industry incentives schemes.
SARS is also responsible for the detection and prevention of import fraud.
SARS customs national
footprint covers a network of 42 SARS Customs Branch Offices which are situated in regional centers,
transport nodes and designated harbours.
Operations are maintained at: 10 international airports, 19 designated land border posts, 5 sea ports, 2
inland rail ports, 2 inland sea ports, and 3 international mail centers.
Staffing
Data obtained from the SARS Activity Based Management Portal reflects
total staffing numbers as at November 2009 across all SARS manned
border posts, of a total of 2,171. This figure represents 15% of the
total employment number at SARS, which is currently in the region of
14,000 staff members.
Staffing structure (as at
December 2009)
Chief Officer: Customs and Border Management
Executive: Business Resource Services; portfolio consisting of
the following roles

Projects 2010

Divisional Planning. Performance Monitoring and Reporting

Finance and Logistics

Human Resources

Learning and Development

Modernisation
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ORGANISATONAL UNIT
Group Executive: Border Management and Chair of
BCOCC; portfolio consisting of the following roles

BCOCC Programmes

Regional Liaison

Border Management Policy and Strategy

National Inter-Agency Coordination
Group Executive: Customs Strategy and Policy; portfolio
consisting of the following roles
A number of international attachments (USA, China,

Botswana, Kenya, Belgium)

Customs Standard Operating Procedure

National Customs Strategy and Policy

International Trade

International Customs

Strategic Partnerships

International Trade and Customs Policy
Group Executive: Customs Operations; portfolio consisting of
the following roles

Customs Border Control

Operations, including
o
Modality elements
o
Audit elements, and
o
Legislative interpretation

Customs Risk and Intelligence (Valuation, trade and Origin)

Centralised Customs Operations Support
Customs Risk Management
Research papers and case studies undertaken within identified sectors
- Central Risk Unit
were made available to the research team for review and incorporation
within the sector reports. These included research papers covering the
following:
Milk production;
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ORGANISATONAL UNIT
Imported used vehicles;
Footwear;
Clothing as well as reports addressing Lesotho border as well
as Intellectual Property rights.
Customs Strategy
Strategic considerations against the Customs Green Paper, addressing
and referencing the various trends and areas of analysis that have
framed the proposed SARS Customs Business Model and the
characteristics detailed were considered. In addition we have reviewed
the various implementation strategies and capacity building initiatives
that have emerged from this model including the modernisation
elements of:
Customs policy shifts and adjustments;
Institutional developments;
Modernisation elements including:

Scanner;

AEO (Authorise Economic Operator);

IT Platforms (including the IT platform replacement CAPE
to TATIS);

Regional developments; and

2010.
The
review
of
partnering
stakeholders
in
key
process
developments, technological and legal component was also
addressed.
Customs Policy
SARS Customs Policy considerations are developed against the backdrop
of the adapted Kyoto Convention. We assessed the various customs
standards, policy and procedure in place as these relate to both the
sectors reviewed as well as providing a basis for the benchmark against
identified countries.
Key areas of assessment include:
Management documentation;
Customs operating environment;
Quality Management systems documents;
Service level agreements;
23 | P a g e
ORGANISATONAL UNIT
Indirect taxes;
Stakeholder discussion documents;
Templates; and
Terms of reference documents.
International Trade and
We have gained an understanding of the applied role of both the
Customs Policy
International Trade Agreements and International Customs Policy and
monitoring of external trade relations by this division within SARS. The
research team engaged with SARS embassy officials who provided
guidance as to international contacts within the customs administrative
environment to aid input against benchmarked country reviews and
international best practices.
International instruments and the adaptation thereof within the South
African customs have been reviewed.
Legislative interpretation
This area of operation within the SARS custom environment provided us
with valuable insight and structure in respect of the following areas :Tariff;
Valuations determinations; and
Trade agreements and rules of origin
The application and processes in respect of the above and case study
references against applications within various sectors and border posts
were reviewed and are incorporated into sector reports and are
referenced in the gap analysis.
Current work-shopping initiatives in respect of capacity building for
ensuring appropriate skill and training in particular areas of valuation
have been addressed.
Anti-corruption and
Internal structures in respect of:
security
Anti-corruption hotline;
Recruitment vetting protocols;
Ethics;
National security initiatives;
Policy and procedure governing integrity and security;
Internal
risk
areas,
i.e.
modernisation
of
the
customs
environment;
24 | P a g e
ORGANISATONAL UNIT
Information security;
Research areas covering: Tactical
 Thematic issues (trends)
 Strategy analysis
An internal corruption survey conducted in 2008, with the aim of
measuring the perceived level of corruption in SARS presented with a
number of interesting results. A few key points extracted from the
survey include:
Most common form of corruption was perceived as bribery
Reporting corruption:

A low level of perceived belief that reports will be acted on;

A high perception that employees at SARS are easily
corrupted;

SARS not providing the protection to the individual
reporting.
Measures to deal with corruption

A significantly high response indicating the perception that
SARS system is conducive to corrupt activities.
Corruption at SARS compared to other government departments

A high perception that other Government departments are
more exposed to corrupt officials than SARS.
General points:

A strong perception that corruption at SARS is ‗rife‘;

It is easy to commit bribery;

Nepotism is rife at SARS;

There is abuse of public office;

Perceived favouritism reflected very strong views from the
respondents.
Internal staff dismissal statistics for Customs in respect of fraud
incidents were requested. This data was however not provided for
review.
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ORGANISATONAL UNIT
Operations and Modalities
An understanding of the infrastructure and role-players within the
various customs modalities was obtained.
Enforcement: Special
Case study references were provided.
Detailed resourcing of the
Operations
enforcement division including criminal investigations and prosecutions
roles were addressed.
The National Investigations Team (under the auspices of the SARS
Enforcement Unit) is split provincially. They apply a disintegrated model
whereby the investigation teams are allocated a range of investigations
covering:Income tax
VAT
Customs and excise
Debt and PAYE
Outstanding returns etc
This unit currently has capacity to initiate approximately 600
investigations per year (only approximately 100 of these being customs
related). Whilst they do have skilled investigators who are specialised in
certain areas (e.g. clothing) the level of dedicated skilled capacity in the
customs area is unclear.
No data in respect of the number of cases investigated and prosecuted
over the period of review was presented.
They make use of the customs academy where space is available and
course content suitable to the needs of the team. There is a growing
need for the customization of courses within the enforcement
environment.
Customs Dashboard and
The Customs Dashboard or ‗Managers Dashboard‘ as it is commonly
Activity Based
referred to is a web-based application available in all customs ports.
Management Portal
Statistical assessment criteria (relevance to seizures) are agreed and
measured annually, including anti-smuggling data detailing seizures in
respect of identified commodities. We have obtained components of this
data for the 2005 to 2009 against identified commodities. Against the
mandated scope of the review, commodities covered included only
clothing, footwear and motor vehicle seizures.
Activity Based
Data held in respect of the current resourcing and headcount at
customs border posts per role was provided.
This detail outlines
26 | P a g e
ORGANISATONAL UNIT
Management Portal
staffing roles and numbers at each of the border posts. This information
is referenced in the gap analysis.
Customs staffing capacity
These
relate
to
Human
Resource
capacity
building
initiatives
initiatives
undertaken. We have obtained valuable insight against these initiatives
through the questionnaires reviewed as well as from areas of legislative
interpretation.
Commitments in respect of increasing staffing capacity to 5000 by 2011
were canvassed with the Senior Manager (HR Customs). No clear HR
strategy outlining a plan for the attainment of these targets was
available for review.
SARS Customs Academy
The SARS Customs Academy is an appointed Regional Training Centre
(‗RTC‘) for the WCO East and Southern Africa (ESA) region.
The mandate of the WCO RTC is to provide skills development through
the delivery of various programmes and the running of identified
initiatives aimed at the development and up-skilling of the general
workforce and senior management in the ESA region.
The training schedule consists of programmes identified through
learning needs analysis (LNA) and diagnostic studies which are
conducted through the ESA region and the identified skills gaps in the
various customs operational areas within SARS.
The academy was instrumental in facilitating the training of the recently
established CBCU member force and has recently presented an RTCESA Trade Agreements course to the WCO member administrations in
the ESA region.
External stakeholder programmes are also facilitated by the academy
and a number of E Learning programs from the WCO platform are also
offered.
Training initiatives for the 2009 / 2010 period have focused training
initiatives on core skills in relation to Tariff, Valuation, Customs Risk and
Origin. Other initiatives include Post Clearance Audit (PCA) Programme;
CBCU, Female Development within customs and a Successful Plan
Development Programme aimed at maintaining the skills level within the
SARS customs environment through skills and knowledge transfer.
The SARS training schedule is subject to funding and importantly the
appointment of much needed trainer and product developers.
The
strategy and implementation model have been addressed and initiatives
27 | P a g e
ORGANISATONAL UNIT
will be detailed and assessed further in the benchmarking.
Customs IT platform – the
An integrated technology platform has been developed under the
migration from CAPE to
auspices of TATIS. TATIS‘s incorporation of a risk engine as opposed to
TATIS, Phase I
the current interfaced risk engine (ICAS) operational within the current
implementation scheduled
system platform (CAPE) has been reviewed.
for July to October 2010
The current functioning of the risk engine has been assessed and have
been addressed in the context of the benchmarking and gap analysis.
3.1.5
LEVELS OF COOPERATION BETWEEN ENFORCEMENT AGENCIES AND
RELEVANT STAKEHOLDERS
3.1.5.1
In South Africa border control is a multi-departmental activity and the main role-players in
border activities are represented by the BCOCC which was established in 2001.
The
BCCOC is responsible for the strategic management of the South African border
environment in a coordinated manner, with the following strategic functionsi.
Harmonise and implement legislative and policy frameworks;
ii.
Advise policy makers on border environment;
iii.
Develop and implement National Border Control and Security Strategy;
iv.
Develop and maintain ports of entry, bases and borderline;
v.
Coordinate securing of ports of entry, bases and borderline;
vi.
Improve legal flow of persons and goods through ports of entry;
vii.
Improve legal flow of persons and goods through ports of entry; and
viii.
Coordinate law enforcement actions to combat illegal activities.
SARS has been designated as the lead agency at ports of entry and Chair of the BCOCC.
The lead agency has the final responsibility and mandate to ensure proper and effective
functioning of the border environment.
In summary, it is the responsibility of the BCOCC to coordinate law enforcement actions,
develop and maintain border control operations, improve legal flow of goods and persons
and to develop and implement a National Border Control ad Security Strategy.
28 | P a g e
Despite having been created in 2001, the BCOCC still has no complete overall strategic
plan relating to borderline policing as well as no divisional policy relating to borderline
operations. These sentiments were captured in the January 2008 Report of the Auditor
General on Performance Audit of Border Control at the South African Police Service.
Shortcomings identified in the current system flagged issues relating to operations and
planning, training, vacancies, equipment, and data collection.
This element is to be addressed further in the benchmarking and gap analysis.
3.1.5.2
ITAC operates in terms of the International Trade Administration Act, 2000 (‗ITA Act‘) and
is responsible for the administration of ordinary customs tariffs, trade remedies, rebate and
drawback provisions as contained in Schedules 1 to 5 of the Customs and Excise Act, 1964.
The ITA Act makes provision for import and export control of goods specified by regulation
and the Directorate: Import and Export Control issues import and export permits and
investigates and enforces the import and export regulations in terms of the Act.
Research identified that significant fragmentation exists with regards to the administration
and enforcement of customs tariffs.
The Minister of Finance is the custodian of the
Customs and Excise Act and amends Schedules 1 to 5 to the Act upon recommendation by
ITAC. SARS administers and enforces the Customs and Excise Act and reports to the
Minister of Finance. Customs tariff policy is formulated by the DTI and ITAC administers
schedules 1 to 5 of the Customs and Excise Act accordingly and recommends amendments
to the Minister of Finance.
Research indicated that concern exists within SARS regarding insufficient communication
and consultation by ITAC when considering applications for amendment to the customs
tariff. Furthermore representatives from the Department of Agriculture expressed serious
concern about the lack of communication and consultation from ITAC when considering
applications for amendment to the customs tariff on agricultural products.
The lack of
communication and consultation is perceived to result in unilateral amendments to the
customs tariff which creates loopholes and opportunities for customs fraud.
According to ITAC officials, poor communication and co-ordination exist between ITAC and
SARS with regards to the administration of import regulations. This does not relate to the
issuing of import permits which are processed electronically, but to day-to-day
communication and coordination.
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This is demonstrated by changes to the SARS system that have not been communicated to
ITAC, and the lack of information sharing from SARS with regard to specific import
transactions where ITAC identifies irregularities in relation to such import transactions.
3.1.5.3
South African Police Services
Co-operation and information sharing by SAPS for the purposes of the research project
were minimal. Information obtained through interviews is recorded here.
SAPS operates in terms of the SAPS Act, Customs and Excise Act, the Immigration Act and
the National Key Points Act. A view was expressed that a good relationship exists with
SARS on national level. A MoU was drafted between the two departments but have to
date not been signed.
SAPS is also an integral part of the BCOCC structure at national, provincial and ground
level with a BCOCC coordinator stationed at all ports.
SAPS is involved with joint
operations at root level where the Crime Combating Team cooperates with the CBCU.
SARS supplies SAPS with manifests which enable them to do profiling to identify high risk
imports, including illegal imports.
SAPS has no formal link with SARS regarding the
gathering and sharing of intelligence.
High level coordination (synergy, harmonization) between SARS and SAPS is regarded as
not sufficient. The Customs Modernization Strategy where SARS has positioned themselves
as the Lead Agency has created the impression that other government departments must
report to SARS has led to tension and sometimes conflict.
Although the Inter-Governmental Act promotes cooperation and coordination tension exists
between officials of SAPS and SARS, in particular, during joint operations at the ports of
entry. One of the causes of tension is that different government departments have vastly
different aims, structures, policies for remuneration, traveling and accommodation
expenses etc. This tension is not conducive to efficient cooperative functioning.
A disturbing trend that was noted during research, is the territorial attitude displayed by
officials from different departments. This is a cause for concern since it impedes efficient
communication, cooperation, consultation and harmonization at operational levels and is
not in the interest of the country as a whole.
30 | P a g e
3.1.6
Information regarding resourcing and capacity within the enforcement structures (which
are of relevance to the commencement of the benchmarking and gap analysis) was made
available by SARS. Limited information was also supplied by SAPS.
SARS Activity Based Management Portal reflect that total staffing numbers as at November
2009 across all SARS manned border posts totals 2,171. This figure represents 15% of
the total employment number of at SARS, which is currently in the region of 14,000 staff
members. Staffing of border posts vary reflecting a staffing compliment of 2 at Gateway
International, 368 at OR Tambo International and 326 at Durban International.
Staffing portfolios at the various branches, each headed up by a Senior Manager include
the following (not all portfolios are present at all branches):Administrators
Accountants
Analysts
Financial roles
Co-ordinators
Data Capturers
Detector Dog
Handling
Port Commander
Quality Assurers
Registrars
Researchers
Verification officers
Various levels of
Officers
General Assistants
Various levels of
Inspectors
Very limited information regarding resourcing was obtained from SAPS.
SAPS have
inspection teams operating under the auspices of the Cargo Crime Combating Unit. The
Unit focuses on crime but also deal with illegal imports based on information obtained from
manifests which are supplied by SARS, freight forwarders and exporters. No specialized
investigators of commercial crime are stationed at ports of entry.
It was proposed that such units be established at ports of entry because customs and
commercial related crimes do not receive priority attention.
No investigations of dockets relating to commercial crime are conducted at the ports of
entry. These investigations are handled by the various offices of the Commercial Crime
Unit. For example at ORT investigations of customs and commercial related crimes are not
investigated by the airport SAPS personnel but by the Germiston Commercial Crime Unit.
Before 2003 Commercial Crime Units from all provinces were stationed at ports of entry.
Problems with fragmentation and coordination, however, led to the removal of these units
from ports of entry in 2003.
31 | P a g e
Customs fraud cases handled by SAPS are mostly related to under- valuation, counterfeit
goods like footwear and clothing and prohibited cigarettes.
New SAPS port of entry personnel are taken through a basic border control course and
industry specific training is also available.
SAPS personnel are not given any customs
specific training but much of the training that members receive is experienced based and
through mentorships. Thus, there is no focused internal training, and skills are reliant on
experience and business initiatives.
3.1.7
INFRASTRUCTURE CHALLENGES IDENTIFIED
The following infrastructure challenges were identified through stakeholder engagements.
The Consortium was not mandated to conduct inspections at each border post and cannot
attest to the infrastructure facilities available at each location.
Staffing (particularly at seaports);
The layout of land ports of entry is not conducive for the deployment of border
control technology (e.g. biometric recognition systems, number plate recognition
systems, CCTV for anti-corruption, flow control, security etc);
Facilities for searching persons and goods are not adequately monitored by
surveillance systems (blind spots);
Storage facilities for seized or detained goods are not adequate, secure or
monitored by surveillance systems;
SAPS have a scanner at ORT Airport which is used to scan baggage. A big mobile
container scanner is located at Durban harbour. According to a representative from
SAPS funds were requested from Treasury jointly by SAPS and SARS for the
procurement of the scanner. Funds were allocated and SARS handled the process.
SAPS was of the opinion that the scanner will be shared by the two departments but
SARS controls the use of the scanner and it‘s availability to SAPS is limited. The two
departments are currently considering the development of a MoU regarding the use
of the scanner. Information has come to light that on at least one occasion the
scanner was utilised during a political event.
It is unclear as to whether it was
utilised for security purposes or not. Notwithstanding, this detracts from its original
and key functions at this port of entry;
32 | P a g e
Most of the ports lack basic equipment, including:

Four-wheel drive vehicles;

UV lights and portable document verification equipment (biometrics);

Two-way radios;

Binoculars;

Surveillance sensors e.g. CCTV, ground radar, barrier sensors;

Night vision devices.
3.1.8
INITIATIVES TO ADDRESS CUSTOMS FRAUD
3.1.8.1
Customs Modernisation initiatives which covers three key elements:
Meeting obligations in terms of the Kyoto Convention, SAFE Framework and
associated standards and principles. This requires the introduction of standards to
maximize facilitation
Implementing an integrated solution to support the above and meet future
operational demands offering tailored services for traders;
Maximising resources and skills sets through the delivery of common procedures and
decision-making facilitating transparent and consistent delivery at all ports of entry.
3.1.8.2
SARS Customs Academy as well as initiatives to establish and partner with tertiary
institutions in facilitating requisite qualification and standard in respect of Customs
administration;
3.1.8.3
The New Customs Bill(s) which will frame the foundation upon which the operational
objectives are to be based;
3.1.8.4
An integrated technology platform (TATIS‘s incorporation of a risk engine as opposed to
the current interfaced risk engine (ICAS) operational within the current system platform,
CAPE;
3.1.8.5
Customs / Excise Administrative Monetary Penalty System (CAMPS / EMPS);
3.1.8.6
The introduction of a reference price guideline for imported goods;
3.1.8.7
Risk measures to be introduced include:
CBCU visible policing at ports of entry;
Automated Cargo targeting and acquittal processes;
33 | P a g e
Develop Audit capability (Accreditation, Licensing, AEO);
Establishment of Post Clearance Audit Function;
Customs specific enforcement capacity to follow-up on cases (this includes close
working relationships with the NPA); and
Increased information matching in which Customs to Customs agency, third party
and historical information is utilised.
3.1.8.8
The initiative with Brazil and India (IBSA Agreement) where a system has been
developed to electronically match export declarations with import declarations in order to
pro-actively alert customs authorities of anomalies.
3.1.8.9
National Stakeholders Forum (Custom Branch Stakeholders Forum).
This forum is to actively engage on operational and local policy matters in order to improve
trade facilitation, operational efficiencies and compliance. The forum aims to comprise the
following key stakeholders:
South African Association of Freight Forwarders;
South Africa Association of Ships‘ Operators and Agents;
Road Freight Association;
Airline operators;
Chambers of Commerce;
Exporters Association; and
Any other bodies / entities requiring representation.
3.2
SURVEY RESULTS
3.2.1
BACKGROUND
The questionnaire distribution took place over October 2009 to January 2010.
It was
designed and presented with the aim of identifying serious fraud and illegal imports
challenges.
The questionnaire was distributed to various role-players in the Customs
environment and included enforcement agencies as well as industry role-players.
We
received 68 responses as at the end of January 2010. No response was received from
SAPS.
34 | P a g e
3.2.2
LIMITATIONS
The questionnaire was neither scientifically formulated nor controlled;
Distribution was aided by a number of role-players in the enforcement and industry
environment and the research team we were unable to ascertain the level and depth
of the distribution;
Notwithstanding directives issued to SAP permitting the support of officials to the
project elements, no responses have been forthcoming from SAPS officials.
3.2.3
RESULTS
Number of responses received: 68
Number of responses were spoilt: 3
Response areas reflected the following:
3.2.4

89% of responses were received from SARS officials;

5% of responses were received from the textile industry;

3% of responses were received from anonymous sources;

1.5% of responses were received from the dairy industry; and

1.5% of responses were from unknown sources.
SUMMARY OF KEY RESPONSE AREAS:Section B: Customs Fraud Risk Management Capacity
Between 30% and 40% of respondents were aware of anti-fraud initiatives,
including a whistle-blowing mechanism and policy;
Only 37% of respondents were aware of the SARS / Anti-corruption hotline
mechanism – 0800002870;
Only 3% of respondents acknowledged training in the areas of customs fraud and /
awareness; and
In excess of 40% of respondents acknowledged that programmes aimed at
informing employees on customs related issues and operating policies are in place.
35 | P a g e
Section C: Investigation
The majority of respondents indicated that they had neither the capacity to
investigate nor detect fraud;
Respondents are mostly satisfied that disciplinary action for fraud and the referral of
matters to the law enforcement agencies is in place and effective;
Very limited responses were received in respect of the co-operation between the
various enforcement agencies. Where these responses were forthcoming, concerns
in relation to conflicting roles and mandates and the inefficiencies of the BCOCC are
detailed.
Section D: Information Management
The majority of respondents indicated that unit information systems are ineffective
in the recording of allegations, tracking the progress of allegations and revealing
systemic weaknesses and risks;
Very few respondents could confirm as to whether information sharing protocols are
in place and whether the existence of applied policy to manage information sharing
amongst the enforcement agencies is effective.
Section E: Support Requirements
Only 58% of respondents responded to the question as to whether a multiple or
single agency approach would be effective in addressing customs fraud;
The majority of the resources received indicated a preference to the multi-agency
approach.
Section F: Fraud Prevalence
Responses in relation to the perceived rating (1 to 5, 1 being the highest and 5
being the lowest) of the extent and vulnerability to import and customs fraud per
identified sector:
Figure 1
36 | P a g e
Responses in relation to the perceived prevalence of customs fraud I the identified
sectors:
Figure 2
Responses in relation to the perceived prevalence of customs fraud experienced is
illustrated below:
37 | P a g e
Figure 3
Section G: Strategy, Resources and Logistics
Reponses in relation to the top three priorities for improvement that would aid fraud risk
management in the customs and import arena‘s illustrated the following elements:
Staffing numbers
Training and
Sophisticated Electronic Equipment
3.2.5
SARS DASHBOARD
The SARS Customs Dashboard or ‗Managers Dashboard‘ as it is commonly referred to is a
web-based application available in all customs ports.
The Dashboard is used as a
performance management tool within the customs environment. Criteria for analysis and
reporting against the dashboard are agreed upon on an annual basis and continuity
therefore against common elements, year on year, is not always present.
38 | P a g e
Of relevance to the research is the data available on anti-smuggling and in particular
seizures. The data extracted from the SARS Dashboard over the preceding five year period
reflects that seizures are recorded against the following criteria:
Contraband seizures (which have
included
data
captured
against
commodities such as cigarettes and
alcohol)
Counterfeit seizures (which have included
data captured against commodities such as
cigarettes, DVD‘s and CD‘s, clothing and
footwear
Prohibited drug seizures
Cash seizures
Cites seizures
Abalone seizures
Firearms/ammunition explosives
Child pornography/bestiality seizures
Motor vehicle seizures
Diamond and precious metal seizures
Second hand clothing
A number of other seizures
As of 2008, the Customs Border Control Unit (CBCU) involvement and seizure data records
against identified commodity items were captured on the Dashboard. In addition, the Dog
Unit, established in 2007, have accounted for the seizures in relation to commodity items
in respect of:
Prohibited drugs seizures (narcotics);
Endangered species seizures;
Firearms / ammunition / explosives seizures;
Contraband seizures (cigarettes);
Counterfeit seizures (cigarettes, DVD‘s and CD‘S); and
Cash seizures.
Data in respect of the Dog Unit-related seizures is recorded separately.
The appointed statisticians and / or designated staff in the branches / ports are required to
capture relevant incident and seizure activity against these criteria as determined, and
submit the same to the SARS head office for consolidation and subsequent reporting.
We were advised that this source of data is the only available statistical data source that
would support the research. No compliance-related data is available although plans are in
progress to build a broker database against which seizures and detention trends per broker
can be calculated.
39 | P a g e
In relation to the scope of the research project, relevant SARS Dashboard stats are
reflected below.
The stats detail seizures in relation to clothing, footwear and motor
vehicles as extracted from the SARS ‗AST‘ Dashboard in October 2008:
40 | P a g e
Table 1
COUNTERFEIT
SEIZURES
2009/2010 (up to
September 2009)
2008/2009
2007/2008
2006/2007
2005/2006
Total Seizures
Total Seizures
Total Seizures
Total Seizures
Total Seizures
Number of clothing
seizures
No.
23
264
302
475
334
Quantity (Pieces)
No.
1,418,550
756,187
221,276
394,607
186,760
Value
Rand
R 30,476,451.00
R 89,818,719.00
R 104,989,928.00
R 65,267,903.00
R 30,076,231.00
Number of footwear
seizures
No.
18
66
77
147
129
Quantity (Each)
No.
368
61,322
112,535
80,097
119,786
R 79,050.00
R 32,181,637.00
R 28,069,426.00
R 38,153,767.00
R 30,320,504.00
55
144
151
234
R 675,589.00
R 918,193.00
R 2,023,055.00
R 2,122,659.00
R 1,585,386.00
25
106
116
152
103
R 1,398,470.00
R 3,964,823.00
R 10,077,407.00
R 5,183,077.00
R 1,608,029.00
Value
Rand
SECOND HAND
CLOTHING SEIZURES
No.
Value
Rand
MOTOR VEHICLE
SEIZURES
No.
Value
Rand
41 | P a g e
3.3
SECTOR IDENTIFICATION AND MOTIVATION
The sectors identified for research were identified between the CPG and the Consortium
by mutual agreement, after motivation of specific sectors by the Consortium and
consultation with the some stakeholders namely Enforcement Agencies, Business, Labour
and Government before finalisation of the sectors. The following criteria was utilised as a
guideline in the decision making process:
The sector‘s GDP;
Investment potential of the sector;
Current employment and potential employment generation within the sector;
The prevalence of customs related fraudulent activities within the industry sector;
and
The availability and accessibility of industry information.
The sectors chosen for the research were dairy, livestock and red meat; textiles, clothing
and footwear; rubber products and tyres; and motor vehicles and parts.
Feedback in
respect of each of the sectors will be provided separately. The high level overview of the
various sectors is framed within the context of import fraud and the effect on the sectors
in terms of job- and investment losses.
The information contained in this report reflects data available from the various sources
consulted.
Ideally, we would have liked to reflect all data in the same format (e.g.
quantity/weight/value etc), however not all data sources were available to the research
team in a similar and comparable format.
42 | P a g e
3.4
DAIRY
3.4.1
OVERVIEW
OF
THE
INDUSTRY
AND
ISSUES
TO
CONSIDER
WHEN
ADDRESSING THE PREVALENCE AND TYPES OF FRAUD
3.4.1.1
Introduction to the dairy sector
A distinction has to be made between the primary and the secondary dairy industry. The
primary dairy industry refers to the production of raw milk which is undertaken by large
scale and small scale dairy farmers. The secondary dairy industry processes raw milk into
liquid milk products like pasteurised liquid milk and UHT milk, maas, yoghurt, cream and
cottage cheese and concentrated products like milk powder, cheese and butter.
8
The sector producing fresh milk and dairy products is the fourth largest agricultural sector
in South Africa. The primary production sector is much more labour intensive than the
secondary/processing industry.
The secondary dairy industry has undergone major
restructuring during the past ten years with increasing international presence in the
market through joint ventures and take-overs. This exposed the domestic market to new
technology and new products which intensified the level of competition experienced.
9
Industry federations indicated that they felt compelled to create their own investigations
capacity in order to investigate and prevent customs fraud, due to the fact that they were
not receiving this support and co-operation from Government.
Low-priced imported products have a significantly negative impact on the processing
(secondary) industry, since this industry cannot complete on a price basis against such
products. This creates a cycle of downward pressure on the price paid to the producers of
milk (primary industry), which in turn leads to job- and investment losses. Please note
that not all low-priced imports can be regarded as fraudulent, but a significant percentage
may fall within that category.10
8
Industry Statistics 2003 to 2009 – Milk Producers‘ Organisation
Investigation into the customs tariff dispensation with respect to dairy products, Report 89, 2004
Administration Commission
9
10
Milk Producers Organisation
International Trade
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43 | P a g e
Furthermore, the sector is very important in terms of the establishment of emerging
farmers, in particular, in impoverished regions like Qwa-Qwa and the Eastern Cape. Illegal
and sub-standard imports increase the barriers to entry for potential emerging farmers
and also impacts negatively on the sustainability of existing emerging farmers.
3.4.1.2
Sector role players
Three organisations represent the interests of the role players in the dairy industry 11,
namely:
The Milk Producers‘ Organisation (MPO) - established in 1998 and renders a variety
of services in order to represent and empower milk producers;
Milk processors are represented by the South African Milk Processors Organisation
(SAMPRO) - established in 2003; and
Milk SA - overreaching industry organisation created in 2002, a Section 21 company
dealing with the collective interests of the primary dairy industry (raw milk
producers), and secondary dairy industry (processors).
3.4.1.3
In line with the research mandate, the effect of import fraud on employment and
investment in the sector needs to be considered. Due to the fact that the dairy sector is
the 4th largest agricultural sector in South Africa, any job losses and lost investment
opportunities due to import fraud will have a significant impact on growth and
employment of the sector.
According to studies conducted by the Department of Agriculture, the agricultural sector
creates the second largest employment multiplier per Rand invested and that an
investment of R1 million in the agricultural sector creates twice the number of jobs than in
the manufacturing sector 12. Nine of the top ten employment generators in the economy
are within the agro-processing sector. Meat products and dairy products represent two of
the top ten employment generators in the economy. The primary dairy industry directly
employs approximately 60,000 workers while approximately 16,000 workers are employed
by the secondary industry13.
11
International Trade
12
Livestock development Strategy for South Africa, 2007 – Department of Agriculture Forestry and Fisheries
13
Milk Producers‘ Organization statistics
44 | P a g e
The number of milk producers has decreased from 3,899 in January 2007 to 3,551 in
January 2009. The biggest decrease in producers occurred in the Northern Cape (74,4%),
while the number of producers in the Free State decreased by 27%.
The South African secondary industry consists of a small number of large processors who
operate nationally and a large number of smaller processors who operate in specific areas.
These large companies are Clover SA Ltd, which is in joint ventures with the French food
group Danone and the British company Unilever, Parmalat Food Industries SA (Pty) Ltd,
Nestlè SA (Pty) Ltd, DairyBelle and Woodlands Dairies.
For the purposes of this report the total investment in the sector is estimated by the Milk
Producers Organisation to be approximately R20 to R25 billion.
3.4.1.4
Import Statistics
Import statistics is one of the first tools that the industry can utilise to determine
whether:
There is a unexplained increase in the import of dairy products, classifiable under
specific tariff subheadings;
Consignments enter the country at abnormally low prices; and
Consignments enter South Africa from unexpected countries of origin, e.g.
Singapore which does not have a dairy industry.
The usefulness of import statistics is limited by the format in which the statistics is
supplied by SARS. Official import statistics reflect the total import quantity and value of a
product from a specific country per month or year.
Statistics are not given per consignment and details like the port of entry and the purpose
code (Warehouse Entry, General Rebate, Industrial Rebate, Warehouse for Export) are
generally not made available by SARS. Furthermore, Section IV of the Customs and Excise
Act prohibits SARS from making known the names of importers.
The aforementioned
information is essential to monitor and analyse the imports of a product in a meaningful
manner and to identify possible fraudulent imports.
45 | P a g e
Export statistics of countries from which imports originate can be a useful tool in
identifying irregularities with regard to imports. This can be done by comparing South
African import statistics with the export statistics of the export country, using resources
such as the International Merchandise Trade Statistics (IMTS). 14
The following statistical data sourced from the Milk Producers Association is available for
the dairy sector.
This data offers an illustration of the increasing trend in imported
dairy products.
Figure 4: Annual Imports Of Dairy Products, 1991 – 2009
50 000
45 000
40 000
35 000
30 000
25 000
20 000
15 000
10 000
5 000
‗09#
‘91
‘92
‘93
‘94
‘95
‘96
‘97
‘98
‘99 ‘00
‘01
‘02
‘03
‘04
‘05
‘06
‘07
‘08
‗09*
*January to July 2009
#Estimated Year 2009
14
International Trade Statistics Yearbook Tables (http://unstats.org/unsd//trade/imts/imts)
46 | P a g e
3.4.2
CUSTOMS FRAUD RELATED ISSUES AFFECTING THE INDUSTRY 15
3.4.2.1
Introduction
In this section, we will discuss the prevalence of customs fraud in the sector and the
effect of customs tariff classification, rebate provisions, trade remedies and other
government interventions. Wherever we discuss a type of fraud identified as having
occurred in the dairy sector, we will provide a corresponding definition of such term.
The importance of discussing the customs tariff classification is due to the fact that the
simplification of the tariff, including the substitution of specific and formula duties by ad
valorem duties in line with commitments to the WTO can be seen as an incentive for
committing fraud. The same argument can be made with regards to rebate provisions
and other government interventions (where applicable).
During the course of the research various role players in government and the sectors
involved expressed the view that ad valorem duties are an incentive for customs fraud
because it is calculated as a percentage of the value of imported goods. Importers then
manipulate the value of imported products in order to minimise the customs duty
payable.
Specific duties are calculated on the quantity of goods imported, i.e. R4,50 per kilogram
and cannot be manipulated as easily.
It was proposed by government officials and
sector role players that ad valorem duties should be replaced by specific duties with
regard to goods where a high risk of customs fraud exists.
Further The Free on Board (Fob) value of imported products is used by SARS for
customs valuation purposes.
This gives rise to fraud where imported products are
subject to an ad valorem duty. The Fob value of imported products are manipulated to
be as low as possible whilst freight, insurance and other costs are inflated in order to
pay the lowest possible customs duty.
This results in significant revenue losses for
SARS.
15
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3.4.2.2
Prevalence of customs fraud in the sector
Our research indicated that SARS does not view the importation of dairy products as a
high risk with regard to non-compliance and fraud. This results in minimal fraudulent
import transactions being uncovered and/or identified in the dairy sector16.
The Milk Producers‘ Organisation recognised the threat from illegal and sub-standard
imports and consequently created the capacity to identify and address such imports by the
establishment of the forensic investigation company Agri Inspec.
The company is
responsible for identifying irregularities with regard to the import of dairy products and to
take the necessary steps to address such irregularities.
Furthermore, the lack of cooperation and coordination between the government agencies
involved with customs services with regard to imported dairy products led to the
establishment of the Dairy Classification and Technical Liaison Committee. The Committee
consists of representatives from the Departments of Agriculture and Health, SARS, the
Dairy Standard Agency and the Milk Producers‘ Organisation.
All issues relevant to the import and export of dairy products are discussed by the
Committee and action steps are taken to address problems.
This forum has proven
extremely valuable in the industry‘s endeavour to manage the import of dairy products
effectively and efficiently.
Dairy products which are mis-declared also escape the attention of the Departments of
Agriculture and Health – these two departments‘ involvement is critical to ensure that
legislation is complied with when importing dairy products, and that certain legislated
standards are upheld (see ‗ Other forms of Government intervention‘ below).
Through information obtained from forensic investigations conducted on behalf of the
MPO it was ascertained that mis-declaration, under-valuation and circumvention of the
tariff are the types of fraud prevalent to the dairy sector.
3.4.2.3
For all the sectors reviewed, we will provide comments and information on the customs
tariff classification and rebate provisions, since customs fraud cannot be viewed in
isolation from these two items.
16
Reports on investigations conducted by Agri Inspec, 2006 to 2009
48 | P a g e
The customs tariff classification for dairy products is found in Schedule 1 to the Customs
and Excise Act of 1964. The preferential rates of duty in terms of the trade, development
and cooperation agreements with the EU, EFTA and SADC are included. Dairy products
are classifiable under tariff headings 04.01 to 04.06 as follows:
All dairy products imported from SADC member states are free of duty;
All liquid milk products (tariff heading 04.01) and yogurt (tariff heading 04.03) are
free of duty, regardless of the country of origin;
Milk powder is subject to a rate of duty of R4,50 per kilogram;
Whey powder originating from the European Union has a reduced rate of duty of
R2,835 per kilogram while whey powder imported from other destinations is subject
to a rate of duty of R4,50 per kilogram; and
Imported butter and cheese are subject to a rate of duty of R5,00 per kilogram.
Products with a dairy content are also classifiable under different tariff sub-headings as
follows:
Food preparations of goods of headings 04.01 to 04.04, including preparations for
infant use, are classifiable under tariff heading 19.01 at a rate of duty of 20% ad
valorem;
Ice cream, whether or not containing cocoa, is classifiable under tariff heading
21.05 at rates of duty that vary from 10% to 25% ad valorem; and
Food preparations not elsewhere specified are classifiable under tariff heading 21.06
at rates of duty that vary from free to 20% ad valorem.
Since it is difficult to distinguish between different powders (whether containing dairy or
not) and a very small percentage of imported consignments are physically inspected at the
port of entry, some importers use the opportunity to circumvent the tariff payable on dairy
products (classifiable under tariff headings 04.01 to 04.06) by clearing imported products
under one of the abovementioned tariff headings.
The average MFN (most favoured nation) applied duty for dairy products in South Africa is
16.8%. This against comparative data illustrating that average MFN applied duty rate for
dairy products across the benchmarked research countries reflects as follows:
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Canada: 126.2%;
European Communities: 64.1%;
India: 33.8%; and
Malaysia 4.8%.17
The agricultural sector has generally demonstrated a lower tariff duty in SA.
This is
indicative in the above comparisons.
3.4.2.4
Rebate provisions
In South Africa, several provisions for rebate of the duty on imported dairy products exist.
Details of these rebate provisions are as follows:
Item 460.01/04.00 provides for rebate of the full duty on specified quantities of
dairy products, classifiable under tariff headings 04.01 to 04.06, imported by
Botswana, Lesotho, Namibia and Swaziland for domestic consumption only.
Complaints are frequently lodged by the RSA industry that subsidised dairy products
imported under rebate of the duty in terms of this provision are being traded on the
RSA market and are disrupting the local market;
Item 304.07/0403.90 provides for rebate of the full duty on buttermilk powder for
the manufacture of ice cream;
Item 304.07/0404.10 provides for rebate of the full duty on demineralised whey
powder for the manufacture of prepared baby food. This rebate item was abused
since 1998 by importers who utilised the provision for the manufacture of baby
formula milk which is not included in the provision;
Rebate item 460.25 provides for rebate of the duty on specified quantities of dairy
products in terms of South Africa‘s minimum market access obligations. Permits in
terms of this provision are issued by the Director-General: Agriculture. The rate of
duty for dairy products imported under this provision is 19,2% ad valorem. This
could give rise to fraud by way of under-invoicing.
3.4.2.5
Trade remedies
No trade remedies have been implemented with regard to imported dairy products.
17
Source: WTO World Tariff Profiles 2009
50 | P a g e
3.4.2.6
The Department of Agriculture Forestry and Fisheries controls the importation of all live
animals and animal products, including dairy products, in terms of the following
legislation:
Agriculture Product Standards Act, No 119 of 1990; and
Animal Disease Act, No 35 of 1984.
All importers of dairy products are required to apply for and obtain a Veterinary Import
Permit from the Directorate: Veterinary Services. Following receipt of the completed
application form a Veterinary Import Permit is issued and sent to the importer.
A Veterinary Health Certificate which has to be completed by a veterinarian authorized
thereto by the Veterinary Administration of the exporting country is sent to the importer to
be completed within 10 days of departure.
An importer must present the original Veterinary Import Permit, Veterinary Health
Certificate and any other documentation specified to the South African Veterinary Import
Control Officer at the port of entry.
The National Department of Health administers and enforces the legislation regarding the
health of dairy products. A summary of the applicable legislation is as follows:
The Health Act, No 63 of 1977, provides measures for ―… the promotion of the
health of the inhabitants of the Republic and describes the duties and powers of
local authorities, especially with regard to the prevention of diseases...‖
Regulations Relating to Milk and Dairy Products (R1555) were issued in terms of the
Foodstuffs, Cosmetics and Disinfectants Act, No 54 of 1972.
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3.4.3
3.4.3.1
Mis-declaration as a specific type of import fraud identified in the dairy
sector18
Dairy products, classifiable under tariff headings 04.01 to 04.06 are fraudulently cleared
under other tariff headings like 19.01, 21.05 and 21.06, since the last mentioned tariff
headings are subject to lower rates of customs duties.
The purpose of such mis-
declaration is thus to circumvent the customs tariffs payable.
An example of this is processed cheese which has for the past 5 years been imported by a
specific importer and cleared as food preparations, classifiable under tariff heading 21.06
at a rate of duty of 20% ad valorem which is significantly lower than the rate of duty of
R5,00 per kg applicable to the product. Furthermore, the Free on Board prices of the
products are abnormally low (between R10,00 and R16,00 per kilogram) in order to
minimise the ad valorem duty payable.
The matter was handed over to SARS in November 2008 together with all the relevant
documentary evidence but the imports are still taking place on virtually a monthly basis.
The calculated loss in revenue for SARS amounted to approximately R40,000 on only one
of the consignments imported during 2009. The matter has now been taken up with the
BCOCC at SARS.
Rebate item 304.07/0404.10 provides for rebate of the full duty on demineralised whey
powder for the manufacture of prepared baby food, excluding baby formula milk. This
rebate item was abused since 1998 by importers who utilised the provision for the
manufacture of baby formula milk which is excluded from the provision. SARS launched
an investigation into the matter in 2009 which has not been concluded yet.
18
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52 | P a g e
3.4.3.2
Abuse of rebate provisions as a specific type of import fraud identified in the
dairy sector19
Rebate item 460.01/04.00 whereby Botswana, Lesotho, Namibia and Swaziland (BLNS
countries) are allowed to import specified quantities of dairy products at free of duty has
led to circumvention of the tariff in the past. Dairy products were imported from the EU at
subsidized prices by Swaziland in terms of the provisions under rebate item 460.01/04.00
and sold on the South African market contrary to the conditions of the rebate item.
The products entered the South African market at very low prices without payment of the
applicable import duty. This abuse not only resulted in loss of income for SARS but also
impacted negatively on South African milk producers and processors who cannot compete
against imported products entering the country at subsidised prices.
Towards the end of 2006 a complaint was lodged with the MPO that a certain milk
processor in the Eastern Cape informed dairy farmers that the company was no longer
going to purchase milk from them since the products required could be sourced, from
Swaziland at significantly lower prices.
The multinational company secured a supply
contract for full cream milk powder, classifiable under tariff subheading 04.02.21.
The MPO suspected that the product was subsidized milk powder imported into Swaziland
in terms of the provisions under rebate item 460.01/04.00, and then supplied to the
company in the Eastern Cape. This practice is illegal since dairy products imported in
terms of the provisions of the said rebate item are for the import country‘s own use only
and cannot be traded on any of the other SACU member countries‘ markets.
In view of the above the MPO obtained written confirmation from the Deputy Director:
Africa Trade of the Department of Agriculture (DoA) regarding the condition that any dairy
products imported in terms of rebate item 460.01/04.00 are for home consumption of the
import country only, regardless of value added.
Agri Inspec was requested to urgently investigate the matter and to submit copies of the
letter from the DoA to SARS officials at all the RSA/BLNS border posts for their
information. Agri Inspec conducted an investigation at the RSA/Swaziland border post
situated at Oshoek and found the following irregularities:
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53 | P a g e
Full cream milk powder, classifiable under tariff heading 04.02 and imported into
Swaziland in terms of rebate item 460.01/04.01, was traded from Swaziland into
South Africa during 2004 to the end of 2006;
No record was found of any permits issued by the DoA to the importer;
The packaging of the products did not comply with South African regulations; and
Agri Inspec calculated that import tariffs amounting to approximately R5,000,000
were payable to SARS for the period under investigation.
The matter was reported to the DoA and handed over to SARS for investigation. SARS is
prohibited by the provisions of the Customs and Excise Act of 1964, to divulge any details
of the progress with the investigation.
3.4.3.3
Under valuation as a specific type of import fraud identified in the dairy
sector20
Under-valuation mainly occurs in respect of product subject to the payment of VAT.
Consignments of dairy products of which the Free on Board prices are extremely low and
not in line with production costs and published world prices are imported on a continuous
basis.
These products frequently originate from questionable sources like the Isle of Man,
Singapore, Thailand; etc. This places the dairy industry at a competitive disadvantage and
jeopardizes the continued existence of the industry. Agri Inspec is currently investigating
the matter on behalf of the MPO.
20
Investigation into the customs tariff dispensation with respect to dairy products, Report 89, 2004 International Trade
54 | P a g e
3.5
RED MEAT
3.5.1
OVERVIEW
OF
THE
INDUSTRY
AND
ISSUES
TO
CONSIDER
WHEN
3.5.1.1
Introduction to the livestock and red meat sector
Livestock farming takes place throughout South Africa with the numbers and species being
dependent on production potential, climatic conditions, the concentration of population,
the availability and accessibility of inputs and the location of markets.
The livestock
industry which accounts for more than 40% of the total value of agricultural output is a
very important component of the agricultural sector and the national economy. Due to
livestock farming being largely natural resource based it occupies approximately 80% of
the land available for agriculture. Animal husbandry is the primary income generator in
the majority of the rural areas in the country.
Livestock production ranges from modern, highly sophisticated and intensive systems to
subsistence and communal, pastoral systems. Herds consist of indigenous species and
breeds as well as imported breeds and crossbreeds that are well adapted to local
conditions.
In the Department of Agriculture Forestry and Fisheries‘ (DAFF) Livestock Development
Strategy, 2007 it is stated that livestock numbers were estimated at 13,9640,000 cattle
and 28,952,000 sheep in 2002. The largest concentration of cattle and sheep is in the
Eastern Cape. The Department of Agriculture Forestry and Fisheries calculated dairy cows
to represent 21% of the total number of cattle in South Africa. The estimated contribution
from the communal areas to the total cattle and sheep numbers was 40.8% and 12.1%,
respectively. The country‘s cattle population is concentrated along the coastal areas of
the Western and Eastern Cape, the western parts of KwaZulu Natal, the north-eastern and
central areas of the Free State and the southern parts of Mpumalanga.
The sheep
population is concentrated in the Eastern and Northern Cape and is widely spread across
the two provinces.
According to the national Department of Agriculture Forestry and Fisheries there are vast
opportunities for improvement in production efficiency as measured by off-take (number
slaughtered as percentage of total number over years) for cattle and sheep in the
communal sector. The off-take for cattle and sheep in the commercial sector compares
well with that of Australia but is much lower than that of New Zealand, the European
Union and the USA.
55 | P a g e
Furthermore, the sector is very important in terms of the establishment of emerging
farmers, in particular, in impoverished regions like the Eastern Free State and the Eastern
Cape. Illegal imports increase the barriers to entry for potential emerging farmers and
also impacts negatively on the sustainability of existing emerging farmers.
3.5.1.2
Sector role players
Three organisations represent the interests of the role players in the dairy industry,
namely:
The Red Meat Industry Forum (RMIF). The Forum created structures to continue
performing the essential functions performed by the disbanded Meat Board;
The Members of the RMIF created an Article 21 company namely the South African
Meat Industry Company (SAMIC) which is the national representative structure of
the South African red meat industry, managed through a democratically elected
Board of Directors;
The Meat Statutory Measure System (MSMS) is a service provider for the Red Meat
Levy Administrator and collects statutory funds. The Red Meat Levy Administrator
is responsible for the administration of statutory levies;
The Red Meat Producers Organisation (RPO) is a service organisation that acts as a
mouthpiece for South African commercial red meat producers, and promotes
sustainability and the profitability of the red meat industry in South Africa;
The primary aim of the National Emerging Red Meat Producers‘ Organisation
(Nerpo) is to commercialize the developing agriculture sector and ensure
meaningful participation of black individuals within the mainstream commercial
agribusiness sector, hence ensuring the long term sustainability of the agriculture in
South Africa;
The South African Feedlot Association (SAFA) represents the red meat industry on
all formal structures where members' interests are to be established and protected.
The Association is involved with animal health issues, feedlot industry image
building, the supply of relevant domestic and international industry information and
other services to members; and
The Red Meat Abattoir Association (RMAA) is a representative forum for abattoir
owners in South Africa. The abattoir industry is responsible for the conversion of
livestock to meat.
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3.5.1.3
investment in the sector needs to be considered. Due to the fact that the livestock and
red meat sector in South Africa accounts for more than 40% of the total value of
agricultural output is a very important component of the agricultural sector and the
national economy.
Due to livestock farming being largely natural resource based it occupies approximately
80% of the land available for agriculture.
Animal husbandry is the primary income
generator in the majority of the rural areas in the country. Import fraud has led to job
losses and lost investment opportunities in the sector and has to be addressed urgently to
prevent further damage.
According to studies conducted by the Department of Agriculture 21, the agricultural sector
creates the second largest employment multiplier per Rand invested and that an
investment of R1 million in the agricultural sector creates twice the number of jobs than in
the manufacturing sector.
Nine of the top ten employment generators in the economy are within the agro-processing
sector.
Meat products represent one of the top ten employment generators in the
economy.
The livestock sector is a major employer and employment generator with
approximately 425,000 direct and indirect employees and a further 2,125,000 people
dependent on the livestock industry for their livelihood.
Approximately 36,000 farmers
employing about 108,000 farm workers farm with cattle and approximately 60,950
workers are employed in sheep farming.
The industry has high investment potential with the total investment in the industry
amounting to more than R20 billion.
3.5.1.4
Import Statistics
Please refer to the comments in paragraph 3.4.1.4 supra, which is applicable to all sectors
in relation to import statistics. According to the Red Meat Producers‘ Organisation the
quantities of livestock and red meat exported are insignificant in comparison to industry
output. The Bureau for Food and Agricultural Policy reflects the following export figures
with regard to red meat in its report, ―The South African Agricultural Baseline ‖, 2009:22
21
22
Livestock development Strategy for South Africa, 2007 – Department of Agriculture Forestry and Fisheries
Source: Bureau for Food and Agricultural Policy, 2009
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Table 2
Year
Thousand Tons
2006
10.00
2007
9.00
2008
3.60
A summary of beef and sheep imports are as follows (Red Meat Imports, 2006-2008)
Table 3
2006
2007
2008
Thousand Tons
Thousand Tons
Thousand Tons
Beef
66.60
66.20
59.90
Sheep
54.80
52.00
37.20
Total
121.40
118.2
97.10
3.5.2
CUSTOMS FRAUD RELATED ISSUES AFFECTING THE INDUSTRY 23
3.5.2.1
Introduction
Refer to the discussion under the Dairy Sector Report, paragraph 3.4.2.1 supra, which is
also applicable to this section of the report. For brevity purposes the same information
will not be repeated here.
3.5.2.2
Industry representatives are of the view that SARS does not view the importation of
livestock and red meat as a high risk with regard to non-compliance and fraud.
This
results in minimal fraudulent import transactions being uncovered and/or identified in the
livestock and red meat sector. Customs fraud related problems are mainly experienced
with the import of livestock from neighbouring countries, specifically the BLNS countries.
Industry representatives mentioned that they are aware of significant instances of import
fraud that cannot be effectively addressed due to inter alia:
23
Red Meat Producers‘ Organisation
Reports on Investigations conducted by Agri Inspec
58 | P a g e
Lack of boundary fences;
Insufficient record keeping systems (border posts not being computerised);
Lack of infrastructure e.g. lights, weighbridges and offloading- and inspection
facilities;
Lack of skilled and experienced Customs officials; and
Lack of service-orientated approach amongst Customs officials.
The entering of a product into the RSA by not using a registered or approved port of entry
is considered to be smuggling as well as not being in possession of any legal import
documentation. Livestock enter South Africa from neighbouring countries by not using a
registered or approved port of entry and with no import documentation. The animals are
sold on the local market at low prices against which the local industry cannot compete.
The fraudulent imports not only have a significant negative impact on the competitiveness
of the industry but also pose major health risks because the Departments of Agriculture
Forestry and Fisheries whose responsibility it is to ensure that animal health legislation is
complied with when importing livestock is not involved in the importation process. (See
‗Other forms of Government intervention‘ below).
Through information obtained from forensic investigations conducted on behalf of the Red
Meat Producers‘ Organisation it was ascertained that mis-declaration, under-valuation and
smuggling are the types of fraud prevalent to the dairy sector.
3.5.2.3
The customs tariff classification for cattle, sheep, beef and mutton is found in Schedule 1
to the Customs and Excise Act, 1964. The preferential rates of duty in terms of the trade,
development and cooperation agreements with the EU, EFTA and SADC are included.
Live sheep and cattle are free of duty while the meat of sheep and cattle originating from
all sources except SADC, are subject to a rate of duty of 40 per cent ad valorem or
240c/kg. Meat imported from SADC is free of duty. This may and does give rise to import
fraud through mis-declaration of the origin of red meat as originating in SADC to
circumvent the payment of the applicable import duty.
59 | P a g e
The average MFN applied duty for animal products in South Africa is 13.1%. This against
comparative data illustrating that average MFN applied duty rate for animal products
across the benchmarked research countries reflects as follows: 24
Canada: 20.7%
European Communities: 27.6%
India: 31.6%
Malaysia 3.8%
The agricultural sector has generally demonstrated a lower tariff duty in SA.
This is
indicative in the above comparisons.
3.5.2.4
Rebate Provisions
In the RSA several provisions for rebate of the duty on imported red meat exist. Details of
these rebate provisions are as follows:
Frozen, boneless meat of sheep or goats can be imported at rebate of the full duty
less 56c/kg with a permit issued by the International Trade Administration
Commission;
Frozen, mechanically deboned meat of bovine animals for the manufacture of
cooked or smoked sausage and similar products and of prepared or preserved meat
in airtight metal containers can be imported at rebate of the full duty;
Frozen, boneless meat of bovine animals for the manufacture of prepared or
preserved meat in airtight metal containers can be imported at rebate of the full
duty with a permit issued by the International Trade Administration Commission;
In order to comply with South Africa‘s commitment to the World Trade Organisation
(WTO): Marrakesh Agreement regarding market access specified quantities of red
meat are allowed to enter South Africa at reduced rates of duty annually. Rebate
item 460.25 provides for rebate permits to be issued by the Director-General:
Agriculture in terms of South Africa‘s minimum market access obligations.
The
reduced rates of duty on red meat of bovine animals and sheep are ad valorem
duties which often lead to under-invoicing of imported consignments.
Industry representatives indicated no knowledge of abuse of the above rebate provisions.
24
60 | P a g e
3.5.2.5
Trade remedies
No trade remedies have been implemented with regard to imported livestock and red
meat.
3.5.2.6
The national Department of Agriculture Forestry and Fisheries controls the importation of
all live animals and animal products, including red meat, in terms of the following
legislation:
Animal Diseases Act, 1984 (Act No 35 of 1984)
Meat Safety Act, 2000 (Act No. 40 of 2000)
All importers of live animals and red meat are required to apply for and obtain a
Veterinary Import Permit from the Directorate: Veterinary Services.
3.5.3
3.5.3.1
Mis-declaration as a specific type of import fraud identified in the livestock
and red meat sector
During the importation of livestock from Namibia fully grown cattle are declared as weaner
calves which weigh about 50% less per unit. The calves are transported in closed trucks
and the content of the trucks is not inspected at the border post.
In addition SARS
officials are not adequately trained with respect to livestock and red meat and do not have
sufficient knowledge to conduct inspections for verification purposes. Officials are not able
to distinguish between weaner calves and fully grown livestock and this situation is
exploited by importers. This results in an under-declaration of weight and consequent
under-declaration of price per unit and total value.
These irregularities enable Namibian exporters to deliver livestock to the RSA meat market
at prices against which South African livestock producers cannot compete.
61 | P a g e
3.5.3.2
Under-declaration of quantity and value as a specific type of import fraud
identified in the livestock and red meat sector
Large numbers of weaner calves are being exported to South Africa from Namibia. The
calves are transported in closed trucks and the content of the trucks is not inspected at
the border post.
During the importation process, the value of the weaner calves declared on the
documentation for customs purposes is significantly lower than the actual value of the
consignment. The purpose of this under-declaration of value is to minimise the amount of
VAT payable.
Under-declaration of value of weaner calves exported to South Africa by a single Namibian
exporter was calculated to amount to approximately R25 million over a period of 2.5
years. Upon further investigation, it was found that the value of each consignment of
weaner calves entering South Africa was under-declared by between R140,000 to
R160,000 which is estimated to be R20,000 less than the actual value thereof.
The number of weaner calves entering South Africa is also manipulated as a result of the
lack of sufficient offloading and inspection facilities. It is therefore not possible for officials
at the border posts to count livestock and verify the correctness of import documentation.
The lighting at border posts is insufficient which results in inadequate control of trucks and
loads of livestock transported at night. During the summer livestock is mainly transported
at night because animals suffer from heat stress during the day.
The same problems are experienced with regard to sheep and goats. Large numbers of
sheep and goats are brought into South Africa from Namibia via the Nakop border post,
where the same trend of under-declaration of value and numbers is found. Furthermore,
beef and sheep carcasses are brought in from Namibia at under-declared values.
These irregularities enable Namibian exporters to deliver livestock to the RSA meat market
at prices against which South African livestock producers cannot compete. The underdeclaration of value and numbers of imported livestock has a direct negative effect on the
South African market price of red meat.
62 | P a g e
3.5.3.3
Smuggling as a specific type of import fraud identified in the livestock and
red meat sector
Large sections of the boundary fence between Zimbabwe and South Africa are either
damaged or do not exist anymore and are not repaired and or maintained by the
responsible authorities. This poses a serious problem during the winter months when the
Limpopo River is not flowing and for all practical purposes virtually no boundary exists
between Zimbabwe and South Africa. The lack of border fences is conducive to illegal
activities like the smuggling of livestock from Zimbabwe to the RSA on the one hand while
on the other hand from a veterinary point of view these animals pose a great risk with
regard to the spread of transmittable diseases.
The problem is exacerbated by the fact that the relevant South African authorities like the
SAPS Border Police, SARS‘ Border Control Unit and the Department of Agriculture‘s
Directorate: Animal Health does not have sufficient capacity to patrol, maintain and control
the border fence adequately.
Livestock which is smuggled into South Africa from
Zimbabwe is sold at low prices to local residents and speculators and distorts the RSA
livestock market. Losses are also suffered by SARS owing to the non-payment of VAT on
the livestock.
The Department of Agriculture Forestry and Fisheries controls the movement of livestock
from Lesotho to South Africa through two Acts in terms of which permits have to be issued
before the livestock is allowed to enter South Africa. Firstly a permit issued in terms of
the Animal Improvement Act, No 62 of 1998, by the Department of Agriculture is required
before livestock is allowed to be transported from Lesotho into the RSA for purposes of
grazing, direct sale and slaughter.
Secondly an import permit issued in terms of the Animal Disease Act, No 35 of 1984, is
required before importation is allowed.
Investigation by the Red Meat Producers‘
Organisation revealed that this system is being abused and large numbers of livestock are
entering the country from Lesotho without permits.
According to the Red Meat Producers‘ Organisation it is estimated that between 100,000
and 120,000 head of cattle of which approximately 80% were brought into the country
from Lesotho without permits and/or crossed the border illegally, are currently in South
Africa.
Agri Inspec found that there is no fence left between Lesotho and the RSA and livestock
are moved from Lesotho through the Caledon River at night, to where they can find
suitable grazing on South African soil.
63 | P a g e
Large numbers of livestock from Lesotho origin are sold to speculators at prices that are
substantially lower than the current South African market price and are delivered very
cheaply to auctions and abattoirs. The Red Meat Producers‘ Organisation states that this
state of affairs has a very negative influence on market prices in the Free State, and poses
a major threat regarding the spread of animal diseases.
Furthermore, beef and sheep carcasses are smuggled from Namibia to South Africa at low
prices. This highly vulnerable state is attributable to the fact that the relevant authorities
are not exercising sufficient supervision and/or control over the situation.
3.6
FOOTWEAR
3.6.1
OVERVIEW
OF
THE
INDUSTRY
AND
ISSUES
TO
CONSIDER
WHEN
3.6.1.1
Introduction to the footwear sector
The domestic footwear industry consists of 112 manufacturers under the umbrella of the
Southern African Footwear and Leather industries Association (SAFLIA) and the National
Bargaining Council (in addition to at least 60 other SMME‘s).
South Africa has certain competitive advantages for the production of footwear, such as
the availability of raw material to produce any type of footwear from low end to high end
(e.g. bovine, ostrich, Nile crocodile, game leather, textile and PVC and PU synthetic raw
materials can all be sourced locally without difficulty); and reasonably low labour costs
(comparable to those of developed countries).25
The outgoing President of SAFLIA mentioned in his message to members, that during the
current tough economic times, South Africa has increased locally made shoe sales to
51 million pairs – up from 30 million a few years ago (thus a 70% increase) and exported
1.5 million pairs of the locally manufactured shoes. However, 149 million pairs were still
imported; where South Africa has 40% of people unofficially unemployed, and 23%
officially unemployed.26
25
26
http://www.thedti.gov.za/publications/textiles.htm#overview
SAFLIA Annual Report 2009, p. 4
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3.6.1.2
Sector role players and specific contributions to combat customs fraud
The Southern African Footwear and Leather Industries Association (SAFLIA) was
established in 1997. It includes footwear and leather sector suppliers, and incorporates
the Footwear Manufacturers‘ Federation of South Africa that served the industry from
1944. The footwear section in the National Bargaining Council of the Leather Industry of
South Africa is still the dominant one and SAFLIA the largest employer party on the NBC.
The other employer parties represent the Tanning and the General Leather Goods
sections. The two unions are NULAW and SACTWU.
27
SAFLIA requires both members and non members to pay a compulsory levy in support of
the Footwear Industry Technological Fund.
Income from the Fund is used to finance
ongoing projects by SAFLIA on behalf of the footwear sector, inter alia28:
Project to provide training to Customs Officials at border posts, including harbours
and airports, with a view to improving monitoring of compliance with legislation
relating to footwear imports;
Maintaining a database on footwear production, employment, imports, and exports
in the footwear sector;
Ongoing liaison with Government and private sector organizations on a wide range
of matters of vital importance to the industry in the field of international trade such
as globalization, tariff issues, free trade agreements and a variety of micro- and
macro- economic issues affecting the industry directly;
Projects aimed at promoting sustainable economic growth and employment in the
footwear industry, such as the development and implementation of the Customised
Sector Programme (CSP) for the Footwear and Leather Goods Sectors;
Financial aid to the footwear and leather export council (SAFLEC) to assist it in its
export promotion programmes.
The Executive Director of SAFLIA indicated that although efforts had been made in the
past to assist Customs Officials with training, these initiatives are only now starting to bear
fruit, partly due to the problem of constant restructuring in SARS (and as a result changing
requirements). In addition, the existence of the SARS Customs Academy was not widely
known in the industry.
27
28
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SAFLIA informed us that it had funds set aside for the purpose of assisting SARS Customs
officials with specific and expert training.
They have, however, had no request for a
proposal in this regard from SARS. The industry has identified an immediate need for
such training as a result of a lack of knowledge amongst customs officials on the
classification of footwear.
SAFLIA suggested that some form of footwear specific and general qualifications be
instituted for the customs officials. It was further suggested that limiting the ports of
entry for footwear (and other products) would greatly reduce illegal imports as expertise
could be concentrated.
In order for SAFLIA to assist SARS to identify which ports of entry the import of footwear
should be limited to, they would need the import data for the different ports of entry for
the last 3 years in order to draft a proposal in this regard.
3.6.1.3
The footwear industry is a major employer in the South African market. The majority of
factories producing footwear are small to medium sized employers 29.
The majority of
employees per region are found in Kwazulu Natal 30.
According to SAFLIA, labour statistics from the National Bargaining Council of the Leather
Industry of South Africa (NBC) reflected a decrease of 1,4% in employment in 2008,
compared to 2007. The number of firms declined by 4.6% as there was a net loss of 7
firms.31
In terms of investment in the South African footwear industry, foreign businesses can
either invest directly in wholly owned manufacturing plants or enter into business
arrangements with existing producers through joint ventures, licensing or procurement.
Investment-wise, several leading international companies (e.g. Beier, Barker, Jordan and
Bata) have manufacturing facilities in South Africa already or have substantial
procurement contracts with South African producers 32.
29
30
31
32
66 | P a g e
The statistics for investment in the South African footwear over the period between 2006
and 2008 indicate a steady decrease in gross domestic fixed investment from 2006 to
200833 According to industry representatives; fraudulent imports have made a significant
contribution to job- and investment losses.
3.6.1.4
Import Statistics
in relation to import statistics.
Statistics reflecting the total value (FOB) of imports against tariff code chapter 64
(footwear and leather) reflect the following:
Table 4
2006
R 3,868,599,218.00
2007
R 4,475,293,527.00
2008
R 4,797,132,998.00
2009 (up to Sept)
R 3,703,372,237.00
The top 10 exporters to South Africa of Footwear and Leather (2006 – September 2009)
are detailed below. The unit values of the stats varied between pair and kilogram values.
Table 5
Country
2006 (“R”)
2007 (“R”)
2008 (“R”)
To Sept 2009
(“R”)
1
China
7,528,153,719
6,065,050,693
7,267,548,723
6,561,774,991
2
India
732,517,317
869,843,804
977,537,335
728,403,042
3
Pakistan
602,862,662
691,477,901
743,070,427
463,546,755
4
Germany
453,504,123
551,507,122
706,409,968
442,885,836
5
Taiwan
481,692,766
548,399,824
557,231,990
370,331,665
6
Italy
343,300,160
365,087,388
387,673,866
208,036,201
7
Korea
261,950,208
287,455,931
431,783,124
282,568,353
8
Zimbabwe
335,656,517
314,753,353
313,361,327
286,669,292
9
Mauritius
178,165,891
290,014,732
436,939,892
342,984,780
10
UK
313,939,200
328,372,543
349,398,743
206,674,308
33
Source: Senior Economist, Research and Information, IDC
67 | P a g e
The above table reflects an increasing trend in the value (FOB) of imports into South
Africa. Chinese import values reflect a marked increase of R6 and 7 Billion when assessed
against the other importing countries. The marked increase of German imports of clothing
and textiles, particularly in 2008 is notable.
3.6.2
3.6.2.1
Introduction
3.6.2.2
Our research has indicated that the following types of fraud are most prevalent in the
footwear sector: counterfeiting, under-invoicing and smuggling.
3.6.2.3
The customs tariff classification for footwear is contained in Schedule 1 to the Customs
and Excise act, 1964, Chapter 64. Chapter 64 contains 75 tariff lines of which the rate of
duty vary between free and 30% ad valorem.
As a result of various industry related
investigations, it has been determined that these ad valorem duties create a significant
incentive for importers to undervalue or under invoice the imported goods.
As a result of different trade development and co-operation agreements with various
countries, the rates of duty applicable to similar items differ depending on the country of
origin. This creates a further incentive for fraud in mis-declaring the country of origin on
the labeling and import documentation with regards to these goods.
The average MFN applied duty for leather and footwear in South Africa is 13.3%. This
against comparative data illustrating that average MFN applied duty rate for leather and
footwear across the benchmarked research countries reflects as follows:34
Canada: 5.3%
European Communities: 4.2%
India: 10.1%
Malaysia 14%
34
68 | P a g e
3.6.2.4
Rebate provisions
Schedule 3 to the Customs and Excise Act 64 (Tariff Book) contains 45 lines of Rebate
Provisions. Forty-four of these lines are full duty rebate provisions, whilst one is a full
duty rebate provision, less 15%.
3.6.2.5
Trade remedies
There have not been any anti-dumping duties or other trade remedies implemented with
regards to imported footwear to South Africa.
3.6.2.6
The WTO provides the footwear duty rates applied by South Africa as well as the WTO
Bound Rates for South Africa. The Applied Rates contain 85 lines, of which the rate of
duty varies between free and 30% ad valorem. The Bound Rates contain 29 lines, which
vary between 20-30% ad valorem.
In the SAFLIA annual report 2009, it is specifically mentioned that the South African
Government resisted the attempts of developed countries at the most recent round of
negotiations at the Doha Development Round, held on 23 – 29 July 2008, to steamroller
an agreement which would have resulted in a tariff reduction of 50% (to a duty less than
15%) – this would have inflicted ‗untold and permanent damage‘ to the footwear
industry.35
In addition, South Africa has entered into preferential agreements with the US, EU and
sub-Saharan countries. These agreements confer generous trade benefits. 36
National legislation applicable to the industry is the Customs and Excise Act of 1964 and
the Merchandise Marks Act, 1941 (Act No 17 of 1941) covering SABS standards and
Country of Origin Labeling.
35
69 | P a g e
3.6.3
3.6.3.1
Counterfeiting and non-declaration of country of import as a specific type of
import fraud identified in the footwear sector
Section 10(1) and 11(1) of the Merchandise Marks Act, No 17 of 1941, prohibits the
importation into or the sale in the Republic of South Africa, of the goods specified in the
Schedule, irrespective of whether such goods were made or produced in the Republic or
elsewhere, unless:
―a)
There shall be permanently applied to them in a conspicuous and easily legible
manner words stating clearly –
i)
The country in which they were made or produced‖
During September 2009 the Managing Director (‗MD‘) of Beier Safety Footwear received
information from the company‘s clearing agent that an irregular shipment of safety boots
was destined for South Africa from an Eastern Country. The shipment of boots allegedly
contained no labeling and in appearance looked exactly like the Beier safety boot, except
that it did not contain the name ―Beier‖.
The MD notified a SARS Customs & Excise Official in Durban of this shipment which was
destined for Durban. SARS referred the MD to DTI in Pretoria on 21 September 2009 and
informed him that DTI had a dedicated team that would deal with the complaint. They
also informed him that they have forwarded the case to the DTI in Pretoria.
The MD attempted to contact the relevant DTI official from 21 September 2009 onwards
and only reached him after 25 September 2009. According to the MD, the DTI did not
show any interest in the case and was also unaware of any such case being forwarded to
them from SARS. He tried communicating with the DTI via e-mail, but without success.
When the MD realised that no response was forthcoming from the DTI, he decided to
pursue the matter in a civil court. The case is still ongoing for Beier Safety Footwear.
This incident is an example of insufficient communication between SARS, the DTI and
industry members. It appears that business is keen to assist Customs to improve law
enforcement, but incidents of this nature cause a breakdown in the relationship and trust
between law enforcement and business.
Business sectors from various origins have
indicated to us that that they would like to assist in different sections of law enforcement,
i.e. financial support, training, manpower, etc. It is critically important that relationships
of this nature are maintained and improved.
70 | P a g e
SAFLIA stated that, next to under invoicing, counterfeit footwear imported to SA is the
biggest customs fraud prevalent in the footwear industry. They estimated that 50% of all
imported footwear in SA has entered the country illegally.
SARS stated that it is difficult to obtain the presence of the brand holders at the ports of
entry in order to confirm the authenticity of goods entering the country. They informed us
that in many instances the quantity of the goods do not justify the expense for the brand
holder of dispatching an expert to the port of entry. In such cases, the goods are allowed
to enter the country.
SAFLIA and SACTWU have proposed that the ports of entry be limited for specific goods.
This would enable SARS to concentrate their expertise and resources and thereby
preventing a large portion of illegal imports.
3.6.3.2
Under invoicing as a specific type of import fraud identified in the footwear
sector
China is the largest exporter of footwear to South Africa. Industry role players conducted
a study at the end of 2008/beginning of 2009.
They obtained export information for
products exported from China to South Africa and compared this information to the
relevant import information from China into South Africa.
They identified vast
irregularities between these numbers. This study showed that only approximately 45% of
the value of goods exported from China to South Africa is reflected or declared on the
import documentation in South Africa.
Industry role players informed us that it is well known that the majority of imports from
China are under invoiced or under evaluated. It is, however, impossible for South African
law enforcement agencies to prove this, since the Chinese Government refuses to supply
them with information. SARS officials confirmed that, according to the WTO regulations,
South African Customs Officials are obliged to accept the commercial invoice as the true
value of the goods, if they cannot prove the contrary.
SAFLIA‘s 2009 annual report reflects that China still dominates in terms of footwear
exports to South Africa, followed by Vietnam, Indonesia and Brazil 37.
The numbers in the table above is reflected in the graph below38:
37
38
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Figure 5
Please note that China‘s imports of 139,6 million pairs represent 93% of all footwear
imports to the RSA, and in value 78%.39
The average unit price of Chinese footwear imports into South Africa is R25,71 compared
to R99,82 for imports from the rest of the world, raising questions of possible under
valuation and/ or dumping of footwear from China. 40
3.6.3.3
Smuggling as a specific type of import fraud identified in the footwear sector
Role players agree that smuggling has a significant effect on the industry. Smuggling
happens when consignments of footwear enter South Africa without Customs being aware
of such consignments at all, for example footwear is placed in a container, but hidden
underneath other goods being imported. Due to the vast number of containers imported
every day and comparatively small number of Customs officials that are available to
inspect such containers, the majority of these containers are not inspected and the goods
enter South Africa undetected.
Industry representatives informed us about instances where importers were willing to pay
fines for non-declaration of items on the odd occasions that containers were inspected,
since the possibility of losing a consignment is already ‗built into‘ the pricing of the bigger
lot of consignments that enter South Africa undetected.
39
40
72 | P a g e
3.7
3.7.1
OVERVIEW
OF
THE
INDUSTRY
AND
ISSUES
TO
CONSIDER
WHEN
3.7.1.1
Introduction to the textiles and clothing sector
The textile industry was one of South Africa‘s major employers in the manufacturing sector
in the past but is currently a relatively small employer. Its production represents less than
2% of that of the total manufacturing sector and its exports represent less than 1% of
total merchandise exports. Although small, it is a major payer of rates and taxes in towns
and cities across South Africa in which it is located.
41
The key challenges facing the clothing and textile sectors are seen by industry
representatives as the loss of domestic market share to imports, together with low levels
of profitability and investment; and the alarming level of job losses and a shortage of
skills. 42
The concern that Eastern countries flood our local markets with low priced imported
textiles and textile products is still real. According to official import statistics, finished
textile goods (like bed linen and curtains) are in some instances being imported into South
Africa at prices equal to and sometimes less than the cotton yarn price. This practice is
extremely damaging to the local industry.
Our research has shown a significant decrease in production capacity from 2006 to 2008.
This could be attributed to a decline in demand for textile products as a result of a
combination of any of the following:
Continuous low priced imports from the East, especially from China;
The economic recession, including increased interest rates and the higher fuel and
electricity prices;
Closure of factories as a result of the economic recession;
Decline in exports of manufactured goods; and
The perception that SA cannot leverage resources towards market needs. Raw
material extraction and mass market production are a continuing focus which is the
least profitable and competitive.
41
42
South Africa Textile Statistics and Economic Review 2008/2009 (issued by the Textiles Federation), July 2009, p. 7
Cape Clothing Association 2008 Annual Report, p. 2
73 | P a g e
3.7.1.2
Sector role players
The main federations and role players in the textile and clothing industries are as follows:
South African Technical Textile
South African Worsted Manufacturers‘
Manufacturers‘ Association (‗SATTMA‘)
Trade Association (‗SAWMTA‘)
Textile Federation (‗TexFed‘)
Apparel Manufacturer‘s Association
National Clothing Retail Federation of
National Fabric Knitters' Trade
South Africa (‗NCRF‘)
Association (‗NFKTA‘)
South African Cotton Textile
South African Clothing and Textile
Manufacturers‘ Association (SACTMA)
Workers Union (‗SACTWU‘)
Cotton South Africa
Fibre Group
According to the Textile Federation, it liaises with various stakeholders, including
government and business.
3.7.1.3
43
The South African clothing industry sector is a significant source of employment,
particularly for women. The clothing industry is labour intensive while the textile industry
is more capital intensive.44 During the period 2003 to 2008 both the local textile and
clothing industries were characterized by the closure of a number of companies with the
resultant loss of employment.
South Africa has certain competitive advantages for the production of textiles and clothing,
such as the availability of raw material, including cotton, wool, mohair and vegetable
fibres.45
In addition, South Africa has reasonably low labour costs in comparison to
developed countries. Although the South African textile and apparel industry is small, a
few local manufacturers had success on the international market, for example Gelvenor
Textiles, a local fabric mill, supplies more than 50% of the world‘s demand for parachute
fabrics.
As a result of low-priced imports of finished goods, a major producer and exporter of
filament yarn (SANS Fibres) shut down. Increased low priced imports has also caused one
of the major textile firms, the Frame Group, to close its spinning and weaving plants.
43
44
45
Source: Texfed
The Textile and Clothing Industry in South Africa, Etienne Vlok, 2006, p. 227
74 | P a g e
In terms of investment in the South African textiles and clothing industry, foreign
businesses can either invest directly in wholly owned manufacturing plants or enter into
business arrangements with existing producers through joint ventures, licensing or
procurement.
Investment-wise, several leading international companies like Ulster Carpets, Herdmans
and KAP Holdings have manufacturing facilities in South Africa already or have substantial
procurement contracts with South African producers.
3.7.1.4
46
Import Statistics
in relation to import statistics. Statistics reflecting the total value of imports against tariff
code chapter 50 to 63 (clothing and textiles) reflect the following:
Table 6
2006
R 14,375,195,551.00
2007
R 14,391,727,050.00
2008
R 16,943,330,661.00
2009*
R 12,906,629,750.00
* January to September 2009
The top 10 exporters of Clothing and Textiles to South Africa for the period 2006 –
September 2009 are detailed below:
Table 7
Country
2006 (“R”)
2007 (“R”)
2008 (“R”)
Up to Sept 2009
(“R”)
1
China
2,846,235,496
3,299,895,444
3,637,458,642
2,682,120,443
2
Vietnam
300,544,797
390,524,069
362,576,920
367,925,003
3
Italy
167,019,544
238,812,651
261,442,868
185,336,221
4
Indonesia
97,294,712
126,883,776
144,998,430
165,580,174
5
India
100,250,308
76,669,948
98,954,644
89,606,914
6
Brazil
73,859,408
74,655,385
65,961,188
49,627,111
7
Hong Kong
87,393,700
61,990,492
30,675,082
19,150,647
46
75 | P a g e
Country
2006 (“R”)
2007 (“R”)
2008 (“R”)
Up to Sept 2009
(“R”)
8
Thailand
55,493,319
53,156,797
42,057,157
28,525,465
9
Spain
11,794,167
15,603,186
13,404,671
11,232,579
10
Taiwan
17,715,720
9,882,660
14,935,403
4,887,557
The above table reflects an increasing trend in the value (FREE ON BOARD) of imports
into South Africa year on year, with China again dominating this trend.
3.7.2
CUSTOMS FRAUD AND RELATED ISSUES AFFECTING THE INDUSTRY
3.7.2.1
Introduction
3.7.2.2
According to SARS the rapid growth in illicit trade (such as counterfeit goods and undervalued textiles and clothing originating from the east, in particular) continually eroded
South Africa‘s revenue base and was the main cause of the closure of clothing and textile
factories and numerous job losses. South Africa‘s clothing trade is the worst hit by illegal
imports. The root causes are:
The opening of the South African market to international trade;
The continuous increasing surge of low priced imports, mainly from China, which
contributed about 40% of textile imports;
Corrupt officials;
Widespread and systematic under-declaration of imported goods;
Lack of a systemic and unified approach by government;
Gaps in legislation and policy;
Failure to share information and intelligence between government, business and
labour;
Lack of requisite skills in SARS and adequate professional education for customs
officials,
Public complacency; and
76 | P a g e
The global economic meltdown aggravated the situation. 47
Our research has indicated that the following types of fraud are most prevalent in the
textiles and clothing sector: under-valuation, counterfeiting and mis-declaration of origin
and tariff classification.
3.7.2.3
The customs tariff classification for clothing and textiles is included in Schedule 1 to the
Customs and Excise Act of 1964, and detailed in Chapters 50 to 63. All these duties are
ad valorem duties, meaning that it is determined on a percentage of the value of the
goods.
Various industry-related investigations indicated that this creates a significant
incentive for importers to under-value or under-invoice the imported goods.
The fact that similar products are classified under different tariff sub-headings at varying
rates of customs duty was identified as an incentive for customs fraud. This classification
creates loopholes which are used by importers to mis-declare the tariff classification of
imported products in order to circumvent the customs duty payable. Importers tend to
incorrectly clear the imported products under the tariff sub-heading subject to the lowest
rate of customs duty. According to industry representatives this problem is exacerbated
by the fact that these actions frequently go unnoticed as a result of insufficiently staffed
ports of entry and/or inexperienced or insufficiently trained customs officials.
South Africa has entered into several bilateral and multilateral trade and development
agreements. Circumvention of the tariff as a result of preferential rates of duty in terms of
trade agreements has emerged as a problem, in particular for the textile and clothing
sector.
Industry representatives are extremely concerned with the insufficient administration of
rules of origin which leads to importers exploiting preferential trade agreements by rerouting products through countries that benefit or have preferential trade arrangements
with South Africa and then mis-declaring the country of origin on the labeling and import
documentation.
47
Customs fraud: SARS progress report in response to ‗Framework for SA‘s response to international economic crisis, 20
October 2009
77 | P a g e
Rules of Origin certificates are obtained fraudulently and presented to SARS officials who
do not have sufficient product and/or sector knowledge and accept certificates as being
authentic. This results in, among others, significant quantities of products originating from
Far Eastern countries like China and Thailand illegally entering South Africa at reduced
rates of customs duty.
The average MFN applied duty for textiles and clothing in South Africa is 17.8% and
37.9% respectively. This against comparative data illustrating that average MFN applied
duty rate for textiles and clothing across the benchmarked research countries reflects as
follows:48
Canada: 6.6% and 16.9%;
European Communities: 6.6% and 11.5%;
India: 14.1 and 19.9%;
Malaysia: 10.6% and 15.9%.
3.7.2.4
Rebate provisions
Schedule 3 to the Customs and Excise Act 64 (Tariff Book) contains one hundred and
eighteen (118) rebate provisions for textiles and clothing. One hundred and six (106) of
these provide for full rebate of the duty, whilst the remaining 12 are partial rebate
provisions. Because of the difficulties in distinguishing between different fabrics industry
representatives suspect that rebate provisions are abused through the mis-declaration of
the customs tariff classification of imported products.
3.7.2.5
Trade remedies
Currently there are anti-dumping duties applicable on imports of acrylic blankets from
China and Turkey, which is due to expire mid-2010.
The industry has applied for the
retention of the anti-dumping duties but the outcome of the investigation is still pending.
Before 1999 about 5 companies manufactured blankets in the SACU. As a result of the
dumping of acrylic blankets from Turkey and China, some of the manufacturers closed
down.
48
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During June 1999 anti-dumping duties were imposed on acrylic blankets from Turkey and
China (amongst others) – retrospective to December 1998.
subheadings are 6301.40 and 6301.90.
The applicable tariff
This resulted in blanket fabric on rolls being
imported at dumped prices from the latter half of 1999 (circumvention of anti-dumping
duties on acrylic blankets).
During June 2004 anti-dumping duties were also imposed on acrylic fabrics imported from
or originating in Turkey and China, used for the manufacture of blankets.
The anti-
dumping duties on acrylic blankets were reviewed during 2004/2005 and the anti-dumping
duties on acrylic blankets from Turkey and China were retained (June/July 2005). The
anti-dumping duties on imports from Turkey were retained at the same levels, while those
against China were increased (as ITAC found higher dumping margins during the sunset
review investigation).
As a result of the anti-dumping duties on acrylic blankets and acrylic fabrics for blankets, a
number of Turkish companies invested in and set up manufacturing facilities in South
Africa.
According to industry representatives importers of acrylic blankets from China have
identified a loophole in the customs tariff which enable them to circumvent the antidumping duties by manipulating the acrylic fibre content of the blankets.
Through
adjusting the acrylic fibre content of the blankets to less than 50% importers can clear the
blankets under other tariff subheadings which are not subject to the anti-dumping duties.
For example the fibre content of the blankets is adjusted to be 49% acrylic and 51%
polyester in which case the anti-dumping duty will not be payable as it is technically not
an acrylic blanket anymore.
Texfed states that imports of blankets from China show an increasing trend from 58% of
the total volume of blanket imports in 2005 to an estimated 93% of total blanket imports
in 2009. Texfed is further of the view that it appears as if circumvention of the payment
of anti-dumping duties on acrylic blankets imported from China occurs. After the
implementation of the anti-dumping duties on acrylic blankets at the end of 1998, imports
from China showed a declining trend, but as from 2002 onwards an increasing trend is
evident as China apparently adjusted the fibre content of the blankets from acrylic to
polyester.
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3.7.2.6
Resulting from consultation between government, manufacturers, retailers and organised
labour during 2004 to 2006 a Customised Sector Programme (CSP) for the textile and
clothing sector was formulated.
Recommendations that were based on the CSP were
made in 2008 and after consultation by government with all stakeholders a programme
consisting of six key elements was developed to be implemented over an initial period of
five years.
The CSP consists of the following six programmes and sub-programmes:
(1)
The Competitiveness Programme (CTCP) which includes the following:
The Enterprise Investment Programme (EIP) launched during July
2008 replaces the Small Medium Enterprise Development Programme
(SMEDP). The programme has a special dispensation for the Clothing
and Textiles sector and encourages enterprise-level upgrading of capital
equipment in order to improve competitiveness;
Preferential Loans are available from the Industrial Development
Corporation (IDC for capital upgrading aimed at competitiveness
improvement. Working capital loans are also available at an interest rate
to be determined per applicant;
The Competitiveness Improvement Programme is administered by
the Clothing and Textile Competitiveness Programme (CTCP) Desk at the
IDC.
The programme encourages interventions aimed at improving a
company‘s people, processes and products;
The Production Incentive Programme was proposed to industry in
August 2009 and industry responded with a counter-proposal in
November 2009.
The programme must still be finalized and will be
administered by the IDC. At present a combination of a Manufacturing
Value Add incentive plus a working capital facility is under consideration.
Stakeholders will be notified accordingly upon approval of the structure
of the incentive. The target date for implementation is 1 April 2010.
(2)
The Skills Upgrading Programme is aimed at the identification of the scarce
and critical skills gap in the sector and to bridge the gap between the training
interventions required and the available training.
The Skills Upgrading
Programme has been finalized.
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(3)
Combating Customs Fraud. SARS has been conducting dedicated Clothing
and Textile campaigns to address customs fraud in the sectors since
December 2008. A permanent discussion forum has been established between
SARS and the DTI with a view to develop and implement a monitoring and
evaluation system and for information sharing.
(4)
The Technology & Innovation Plan & Broad Based Black Economic
Empowerment (BBBEE) are to be addressed in the 2010/2011 financial
year.
(5)
The revision of input costs along the value chain (revision of import
duties) is the responsibility of the International Trade Administration
Commission (ITAC).
(6)
The SACU review of the interim Textile Clothing Industry Development
Programme (TCIDP) and the development of a SACU-wide strategy for the
Clothing and Textiles sectors are still in progress. The TCIDP will finally lapse
on 31 March 2010.
3.7.3
3.7.3.1
Counterfeiting as a specific type of import fraud identified in the textiles and
clothing sector
Section 10(1) and 11(1) of the Merchandise Marks Act, No 17 of 1941, prohibits the
importation into or the sale in the Republic of South Africa, of the goods specified in the
Schedule, irrespective of whether such goods were made or produced in the Republic or
elsewhere, unless:
―a)
There shall be permanently applied to them in a conspicuous and easily legible
manner words stating clearly –
ii)
The country in which they were made or produced‖
Representatives from industry are extremely concerned and frustrated about counterfeit
branded clothing originating in the East being sold at main intersections countrywide. The
fact that similar prints and goods appear across multiple areas confirms that the
merchandise is being distributed through central locations.
The apparent inability of
government to prevent this from happening is cause for major concern.
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Further, many retails stores that have not been appointed as authorized brand dealers sell
imported branded products.
Efforts made on an on-going basis by registered brand
owners in cooperation with SAPS and SARS to prosecute offenders have been hampered
by issues like store owners who cannot be traced and the unavailability of relevant
documentation. Counterfeit branded goods, including clothing is also sold at stalls at flea
markets and events and festivals despite assurances by event organizers and flea market
landlords that the sale of illegal branded goods will be controlled.
During September 2009 SARS customs supported by the South African Police Service and
Immigration Division of Home Affairs visited China City in Ottery, Inyanga Junction in
Bellville and warehouses in Lansdowne. The operation resulted in the detention of an
estimated 300 tons of clothing valued at R45 million, including 4 tons of branded
sportswear counterfeit goods valued at R600 000.
According to SARS the goods in a
warehouse in Lansdowne that supplies clothing to some of South Africa‘s leading retailers
were detained for several infringements including labeling, misclassification and underevaluation. Furthermore, 5 tons of clothing and textiles with an estimated value of R1,9
million was also detained from a leading retailer‘s distribution centre for infringements
against the Merchandise Marks Act and the Customs and Excise Act.
49
According to industry representatives, insufficient product knowledge and a lack of training
of customs officials as well as a lack of communication, information sharing and
coordination between SARS and SAPS contribute to the problem not being addressed
adequately.
Industry representatives propose that they be involved in the training of
customs officials at all major ports of entry and that the necessary steps be taken to
improve cooperation, communication and information sharing between SAPS and SARS.
SARS stated that it is difficult to obtain the presence of the brand holders at the ports of
entry in order to confirm the authenticity of goods entering the country. Furthermore,
SARS stated that in many instances the quantity of the goods do not justify the expense
for the brand holder of dispatching an expert to the port of entry. In such cases, the
goods are allowed to enter the country.
49
http:/www.sars.gov.za/home.asp?PID=4232&ToolID=2&ItemID=52439
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3.7.3.2
Under-valuation as a specific type of import fraud identified in the textiles
and clothing sector
The manipulation by importers of the free on board value for customs purposes of
imported textiles and clothing is the type of customs fraud most prevalent in the textiles
and clothing sector. Importers under- declare the value of imported textiles and clothing
in order to minimise the amount of customs duty and VAT payable.
This practise is
evident with regard to virtually every single import consignment of textiles and clothing
when studying the official import statistics.
Consolidated data is not available, however industry perceptions reflect that in excess of
half of the imports of clothing and textiles in South Africa are under-invoiced. Examples of
under-valuation as per the official SARS import statistics are:
Men‘s viscose suits were imported during the last quarter of 2009 at a declared
Free on board value of R5,26 per unit; and
Men‘s woven trousers, like jeans or chinos, at a declared Free on board value of
R0,49 per unit.
According to Texfed acrylic ―2 ply‖ blankets with a filling (―comforters‖) are classifiable
under tariff subheading 9404.90.
Imports from China under tariff subheading 9404.90
increased by 5000% from 2006 to 2009, whilst the average free on board value decreased
from R12.40 per kilogram in 2006 to R4.20 per kilogram in 2009.
During 2009 the
average free on board price of acrylic fibres which is the raw material from which the
comforters is manufactured, originating in China amounted to R4.14/kg. It is evident that
the price of R4.20/kg for the finished product is unrealistically low in comparison.
Texfed states that the injury or threat of injury to the local blanket industry as a result of
mainly under-valuation of imported goods, is visible in respect of the following factors:
Increase in imports at abnormally low prices; in particular from China;
Decrease in local sales and production;
Loss of market share; and
Erosion of profit margins.
Industry representatives are of the view that one of the problems is that SARS only checks
whether the documentation is in order before releasing a consignment. The contents of
containers are not checked to verify the correctness of documentation.
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According to industry representatives SARS has taken a positive step in the right direction
by committing to the development/implementation of an Indicative Price System whereby
recommended minimum prices per item will be loaded electronically onto the system and
warning signals will be raised when items are imported at prices below these amounts.
Such imports, however, can still not be stopped unless proven fraudulent.
3.7.3.3
Mis-declaration of origin as a specific type of import fraud identified in the
textiles and clothing sector
South Africa has entered into several bilateral and multilateral trade and development
agreements. Circumvention of the tariff as a result of preferential rates of duty in terms of
trade agreements has emerged as a problem in the textile and clothing sector.
Research indicated that clothing originating in the East were re-routed through Malawi
where the items were repacked and relabeled as products of origin from Malawi in order
to benefit from the preferential customs duties in terms of the SADC trade agreement.
Various industry representatives share the view that the administration of rules of origin
by SARS is insufficient.
Rules of Origin certificates are obtained fraudulently and
presented to SARS officials who do not have sufficient product and/or sector knowledge
and accept certificates as being authentic.
This results in, among others, significant
quantities of products originating from Far Eastern countries like China and Thailand
illegally entering South Africa at reduced rates of customs duty.
3.7.3.4
Mis-declaration of tariff classification as a specific type of import fraud
identified in the textiles and clothing sector
Industry representatives state that the structure of the customs tariff which results in
similar types of products being classifiable under different tariff subheadings at different
rates of duty creates loopholes whereby importers clear products under the incorrect tariff
subheading in order to circumvent the higher duty payable under the correct tariff
subheading. According to Texfed needleloom felt and stitchbonded fibre fabrics
(nonwoven) fabrics are classifiable under tariff subheading 5602.10 at a rate of duty of
10% ad valorem.
Stitchbonded knitted fabrics, with a visible chain of stitches, are
classifiable under Chapter 60 (warp knitted fabrics) at a rate of duty of 22% ad valorem.
Investigation revealed that stitchbonded knitted fabrics with ―visible chain stitches‖ are
cleared under tariff subheading 5602.10 at a rate of duty of 10% ad valorem.
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Industry representatives propose that SARS conduct forensic investigations of high-risk
and major importers that the rate of container inspections be increased with the
establishment of a minimum percentage for random inspections and a 100 per cent
inspection of goods from high-risk importers.
3.8
RUBBER AND TYRES
3.8.1
OVERVIEW
OF
THE
INDUSTRY
AND
ISSUES
TO
CONSIDER
WHEN
3.8.1.1
Introduction to the tyre sector
The SA pneumatic tyre manufacturing industry comprises four companies, operating six
factories, all of which are controlled by international companies. Many companies also
import other international brands of tyres into SA.
The SA industry previously
manufactured aircraft and bicycle tyres as well as inner tubes but ceased production of
these items due to the very low prices of the imported product. 50
3.8.1.2
Sector role players
Three organisations represent the interests of the role-players in the tyre industry,
namely:
The South African Tyre Manufacturers‘ Conference (SATMC) acts as a watchdog as
well as a representative for the industry, and mediates issues experienced by
industry with government and also with other regulatory bodies.
The industry
representative furthermore assists with the training material for SARS officials and
extends the SATMC‘s expert knowledge to any queries encountered by customs
officials.
Further to this, when SARS conducts raids or when expert technical
assistance is sought, the SATMC can assist with reference to the relevant expertise;
New tyres are regulated by the National Regulator for Compulsory Specifications
(NRCS).
All new tyres have to be homologated by the NRCS which issues a
certificate of approval once they are satisfied with the fact that a tyre has been
homologated.
The warehouse inspections by the NRCS are designed to expose
various forms of misconduct;
50
South African Tyre Manufacturers‘ Conference
85 | P a g e
The National Union of Metal workers of South Africa (NUMSA) is the major trade
union representing the workers in the tyre manufacturing industry; and
Currently the Retail Motor Industry (RMI) is conducting inspections on the premises
as well as equipment of retreaders wishing to import second hand tyres prior to
approval of permits issued to them.
3.8.1.3
investment in the sector needs to be considered.
Due to the fact that five of the six
factories in the sector are situated in areas with higher than average unemployment
levels, namely Port Elizabeth, Uitenhage, Ladysmith and Brits; any job losses and lost
investment opportunities due to import fraud will have a significant impact on the
development and employment of the sector.
There are approximately 6000 people employed in the tyre / rubber industry. Employment
is a significant issue owing to location of the manufacturing facilities. SATMC statistics
show that the industry has suffered more than 1 200 job losses from 2003. According to
the SATMC, cheaper imports originating predominantly from China caused some of the job
losses.
According to the SAMTC annual investment in the tyre industry amounts to approximately
three hundred million rand. Furthermore, the SATMC states that the investment potential
in the industry is generally good.
Factors such as the cost of employment, the
unavailability of electricity, the increased price of raw materials and unfair competition
from imported tyres impede future investment.
3.8.1.4
Import Statistics
code chapter 40 (tyres and related product) reflect the following:
Table 8
2006 (“R”)
16,972,571,518.00
2007 (“R”)
21,348,550,441.00
2008 (“R”)
24,766,572,609.00
Up to Sept 2009 (“R”)
15,464,872,277.00
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The top 10 exporters to South Africa of Tyres and related product (2006 – September
2009) are detailed below. The unit values of the stats vary.
Table 9
Country
2006 (“R”)
2007 (“R”)
2008 (“R”)
Up to Sept 2009
(“R”)
1
China
1,884,391,251
2,881,132,093
3,469,479,968
2,237,329,711
2
Germany
1,880,486,045
2,366,306,279
2,607,177,650
1,695,597,088
3
USA
1,239,460,368
1,660,625,109
1,937,265,022
1,288,295,901
4
UK
1,238,865,770
1,409,796,646
1,542,812,092
1,024,029,698
5
Malaysia
849,992,130
1,061,646,338
1,213,662,492
700,734,184
6
Indonesia
760,426,537
979,963,062
1,235,855,633
726,400,836
7
Japan
742,367,759
1,014,147,360
1,116,813,839
811,133,474
8
France
702,384,900
853,921,526
1,019,034,302
767,166,577
9
Finland
691,927,173
628,787,012
782,061,617
573,439,440
10
Italy
539,317,618
580,678,355
700,134,749
397,811,778
The above table reflects a significant increasing trend in the value (FOB) of imports into
South Africa year on year, with China again dominating this trend.
3.8.2
3.8.2.1
Introduction
3.8.2.2
The SA tyre market is fiercely competitive and operates at very low margins. There is a
general over-supply of tyres in the world and manufacturers are always endeavouring to
increase their export sales. South Africa is seen as a spring-board to sub-Saharan Africa
and is therefore a popular market for exporters wanting to expand.
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According to the role players in the industry, the scams and malpractices that are
prevalent in the industry are under-valuation, round-tripping, abuse of trade agreements,
sale of second-hand tyres, removal in bond/transit abuse and mis-declaration.
3.8.2.3
Tyres are classifiable under the following tariff subheadings:
4011.10 -new tyres for motor vehicles subject to a rate of duty of 30% ad
valorem;
4011.20 -new tyres for buses or lorries subject to a rate of duty of 25% ad
valorem;
4011.30 -new tyres for aircraft at free of duty;
4011.40 -new tyres for motorcycles at free of duty;
4011.50 -new tyres for bicycles at free of duty;
4011.61 -new herringbone tyres for use on agricultural and forestry equipment
subject to a rate of duty of 20% ad valorem;
4012.11 -retreaded tyres for motor cars subject to a rate of duty of 43% ad
valorem; and
4012.12 - retreaded tyres for buses or lorries subject to a rate of duty of 36% ad
valorem.
According to the SATMC the existing tariff classification with regard to some of the types
of tyres, in particular the bigger sized tyres is outdated and makes it difficult to
meaningfully monitor imports. Similar products are classifiable under different tariff subheadings at different rates of duty; for example ― herring-bone‖ tyres and (tractor tyres)
are subject to import duties while tyres which have no pattern are free of duty.
This
classification leads to importers erroneously/falsely clearing tyres under the tariff subheadings where no duties are payable.
South Africa‘s customs duties on tyres range from 23% ad valorem to 30% ad valorem,
are relatively high when compared to the EU where import duties range from 12% ad
valorem to 15% ad valorem. The high level of customs duties coupled with the structure
thereof; namely ad valorem duties give rise to customs fraud. The duties were higher, but
similar to the Motor Industry Development Programme, the tyre industry also had a
programme where the duties were phased down over time.
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Certain importers in the sector would like to do away with duties entirely, but the South
African manufacturing industry will then become completely uncompetitive, particularly
considering the input costs in the industry and country. Currently those duties are
essential to protect the local industry.
3.8.2.4
Rebate Provisions
In South Africa, three provisions for rebate of the duty on imported tyres exist.
The
industry is not currently experiencing any specific import fraud-related problems with
regard to the rebate items.
3.8.2.5
Trade remedies
During 2004 / 2005 the South African tyre industry lodged an application for action against
the alleged dumping of tyres originating from China. ITAC initially found that dumping
was taking place and that the industry was suffering material injury as a result of the
dumping and recommended that provisional payments be implemented. This was in place
for a period of six months.
Thereafter, ITAC conducted the final investigation and found that most of the exports
operated on market economy principles which meant that Chinese prices had to be used
for comparison purposes. These prices indicated that dumping was not taking place.
According to some industry stakeholders, government is not assisting the tyre
manufacturers by levelling the playing field against unfair competition from imported
products. An example cited by the SATMC is the importation of abnormally low priced
motorcycle tyres from China which led to the demise of the South African industry
manufacturing motorcycle tyres.
The SATMC further states that motorcycle tyres are
currently particularly expensive owing to the China imports destroying the local industry.
Some of the bigger international role players such as Pirelli and Michelin are in the process
of withdrawing from the country since they cannot compete with imported products
originating from China.
3.8.2.6
No other forms of government intervention exist within the sector.
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3.8.3
3.8.3.1
Under-valuation as a specific type of import fraud identified in the tyre sector
Tyres are imported at exceptionally low prices.
The reason for this is that importers
manipulate the Free on Board values of the imported products in order to minimize the ad
valorem duties payable.
In some cases a percentage of the total value of imported
consignments is paid up front by importers and an invoice for the outstanding balance is
presented to SARS resulting in less import duty and VAT being payable.
Like many commodities imported into SA, the under- declaration of the value of imported
tyres has a significant negative impact on the competitiveness of the South African
industry.
According to SATMC under-valuation is most prevalent with regard to tyres
imported from China.
The WTO rule of accepting declared value is making it difficult and sometimes impossible
for SARS to act against perpetrators. Import statistics are available from SARS, but the
usefulness of the statistics by the industry in terms of the identification and combating of
fraudulent imports is extremely limited.
The reason for this is that the identity of
importers and access to import documentation are protected by law in terms of the
provisions of the Customs and Excise Act, 1964.
The industry proposes that SARS should amend Section 4 of the Customs and Excise Act,
in order to provide for the identity of importers to be made known and import
documentation to be made available to affected third parties.
Customs could further utilize expertise within the industry by accepting industry
associations‘ comments or input on individual declared prices for specific types of tyres, by
size and model.
The SATMC has a valuation model for every known size of tyre and
country of origin which could be utilised as a reference guide.
3.8.3.2
Round-tripping as a specific type of import fraud identified in the tyre sector
This occurs when goods that are destined to be exported, either never actually leave the
country or are simply re-routed back into South Africa and sold at reduced prices. Tyres
are bought, ostensibly, for export and are therefore exempted from the payment of VAT.
The 14% saving as a result of the non-payment of VAT is often in excess of normal profit
margins. Importers take advantage of this fact as there is little, weak or no customs
control of goods from neighbouring states.
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3.8.3.3
Abuse of trade agreements (mis-declaration of origin) as a specific type of
import fraud identified in the tyre sector
In terms of the SADC Agreement tyres manufactured in the SADC member states can
enter South Africa free of duty.
However, tyres are manufactured only by Dunlop
Zimbabwe and General Tyre Tanzania. Strictly speaking this would mean that only tyres
imported from these two countries are eligible for entry into South Africa at free of duty.
This mis-declaration of origin is possible since the rules of origin (RoO) are not applied
consistently and efficiently and this results in tyres originating from destinations outside
SADC being exported by SADC member states to South Africa and entering the country at
free of duty.
It is the view of the industry that all imported tyres that are declared to be manufactured
in any SADC country, other than Tanzania and Zimbabwe should be queried by SARS and
the origin thereof verified. The industry is further of the opinion that all tyres exported
from SADC countries, other than Zimbabwe and Tanzania should be subject to ordinary
customs duties. The industry proposes that SARS install a system for checking all tyre
imports against country of origin.
The SATMC, Customs Training Manual, contains a complete list of all the producing
countries and can be used by SARS as reference.
It is also proposed that SARS
investigate incorrect declarations of origin to ascertain the presence of underlying
fraudulent declarations.
3.8.3.4
Sale of imported second-hand tyres as a specific type of import fraud
identified in the tyre sector
Import permits for used tyres are issued to tyre retreaders.
The permit requires that
imported used tyres have to be retreaded. It has been found that some importers sort the
used tyres on receipt thereof; and sell many of them directly as second-hand tyres. Used
tyres can be purchased from exporting countries at extremely low prices. In terms of the
ITA Act it is illegal for importers to sell these tyres without being retreaded. This practice
results in diminished vehicle safety and also has a negative impact on the competitiveness
of the domestic industry.
The industry also suspects that due to used tyres being free of duty; unscrupulous
importers are importing new tyres and declaring them as used tyres.
The savings for
importers on duty payable ranges from 20% to 30% depending on the category of tyre
imported.
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According to the SATMC, there seems to be a major problem between SARS and the
Directorate: Import and Export Control at ITAC with regard to the verification of secondhand tyre casing imports against import permits issued. Quantitative control is exercised
by ITAC on these second-hand goods. The permit quantities are mostly also not acquitted
at port of entry.
Every import of this nature should be reconciled electronically making use of a relevant
system within SARS using the import permits issued by ITAC. Paper permits which can
easily be abused by changing the details like quantity are used at present.
The SATMC proposes that imported containers of second-hand tyres should be targeted on
a profile basis for physical inspection owing to under-declaration of quantities being highly
likely and the indent might include undeclared goods in the container like new tyres that
should attract an import duty.
3.8.3.5
Removal-in-transit / bond abuse as a specific type of import fraud identified
in the tyre sector
The Customs and Excise Act No 91 of 1964 states:
―Goods upon which import duties are payable may be stored or manufactured in a
warehouse (bond store). The importer is only required to pay the customs duty and VAT
when the goods are cleared for home consumption, i.e. when removed from the bond
store. It should be noted that if goods are subject, to VAT only, and not subject to import
duty, they cannot be placed in a bond store. Goods could be kept in store for up to two
years. Allowances may be made in exceptional circumstances by the Commissioner to the
effect that certain goods may be kept for an extended period.‖
The type of customs duty evasion that occurs most frequently with regard to tyre imports
is the re-routing of goods imported into South Africa for onward transport to neighbouring
countries. These imports enter the country without the payment of customs duties or VAT
and are placed in a warehouse or bond store pending exportation to a neighbouring
country.
As the control over these shipments is not sufficient significant quantities of the imported
products find their way into the local market. This is a major problem and requires urgent
attention by SARS, since substantial losses in revenue are incurred and jobs are forfeited
in the tyre manufacturing sector.
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According to the SATMC, SARS does not have rigid systems to acquit Removal-in-Transit
consignments. For example, some acquittals between Durban and Botswana are known to
have taken place within the same day, which is physically impossible. Furthermore, SARS
cannot provide any statistics with regard to acquittals on exported tyres which makes
investigations in this regard impossible.
The SATMC, states that the entire customs
acquittal system requires a major upgrade with built in safe guards and ―warning signals‖.
3.8.3.6
Mis-declaration as a specific type of import fraud identified in the tyre sector
At present import permits are required for New, Retreaded and Used tyres, classifiable
under tariff headings 40.11 and 40.12.
Tyres on rims are classifiable under tariff
subheading 8708.70.90 as ―Road wheels and parts and accessories therefore ‖ at a rate of
duty of 20% ad valorem which is 10% lower than the duty of 30% ad valorem payable on
new tyres, classifiable under tariff heading 40.11. Tyres can also be imported by motor
vehicle manufacturers as ―Original equipment components‖, classifiable under tariff
heading 98.01 at a rate of duty of 23% ad valorem.
No import permit is required when importing tyres under tariff sub-headings 8708.70.90
and 98.01. Importers erroneously clear tyres under these tariff sub-headings in order to
avoid applying for an import permit and to pay less customs duty. The SATMC is of the
opinion that this is an anomaly and that all types of tyres should be classifiable under
Chapter 40 and be subject to the same rate of duty.
All passenger, light and heavy commercial tyres are subject to SABS homologation which
is circumvented when importing tyres under tariff headings 87.08 and 98.01.
Tyres
imported under these tariff headings should be subject to compliance with SABS
homologation requirements. Used tyres brought into South Africa for retreading purposes
from any of the BLNS countries are supposed to be returned to the relevant BLNS country
once it has been retreaded. These tyres are not captured in the SARS system and no
acquittal system is in place. This could give rise to fraudulent practices.
The SATMC proposes that a formal system be put in place for the verification of
conformance to compulsory National Regulator for Compulsory Specifications (NRCS)
standards. The experience in the industry is that no verification of tyre imports against
NRCS homologation certificates are being done at the time of indent clearing.
The SABS did endeavour, a few years ago, to integrate their regulatory system with SARS,
but did not succeed. This requires urgent attention as lives on the roads are at stake. No
new tyres should be imported without automatic electronic clearance via NRCS standards
certificates.
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3.9
MOTOR VEHICLES AND COMPONENTS
3.9.1
OVERVIEW
OF
THE
INDUSTRY
AND
ISSUES
TO
CONSIDER
WHEN
3.9.1.1
Introduction to the motor vehicle and components sector
The automobile sector is the largest manufacturing industry in South Africa although its
output in the world market is only about 1%. The sector accounts for about 10% of
South Africa's manufacturing exports, making it a crucial cog in the economy. Locally, the
automotive sector is a giant, contributing about 7.5% to the country's gross domestic
product (GDP).
South Africa has been one of the best performing automobile markets in the world in
recent years. Sales dropped by 5.4% in 2007, with the introduction of National Credit Act
of South Africa, as well as rising prices which curbed spending, and dropped further in
2008 because of the global economic meltdown. The depth and severity of the downward
spiral in domestic new vehicle sales reported in 2009 remain without precedent in the
history of the SA automotive industry.
Up until 2007, major export programmes have kept the local industry buoyant.
The
impact of the global financial and economic crisis and the resulting reduced demand in
South Africa‘s major export markets is reflected in the sharply lower industry new vehicle
export sales which, during the first half of 2009, declined by 36,0% in aggregate volume
terms51.
3.9.1.2
Sector role players
All of the major vehicle makers are represented in South Africa, as well as eight of the
world's top 10 auto component manufacturers, and three of the four largest tyre
manufacturers. Many of the major multinational companies use South Africa to source
components and assemble vehicles for both the local and overseas markets.
Other significant role players are:
National
Association
of Automotive
Component
and Allied Manufacturers
(NAACAM);
National Association of Automobile Manufacturers of South Africa (NAAMSA);
51
Ibid
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Retail Motor Industry Organisation (RMI);
National Association of Automobile Manufacturers and Allied Manufacturers; and
Motor Industry Bargaining Council (MIBCO).
3.9.1.3
During the recent boom in new vehicle sales, employment levels in the motor assembling
sector peaked at 39,412 in October 2006 from 32,548 in March 2005. Employment in the
industry as of March 2009 was sitting at 32,392 as of the second quarter of 2009, a level
last seen 22 years ago. Employment levels during the second quarter of 2009 may be set
out as follows:
Table 10: – applicable to the Motor Assembler trade only
Last pay week April, 2009
31,163
Last pay week May, 2009
30,725
Last pay week June, 2009
30,467
Compared to the 32,392 positions at the end of the first quarter 2009, aggregate industry
employment declined by 1,925 jobs during the second quarter of 2009 to 30,467 jobs.
Manufacturers currently operate predominantly on a single production shift basis, whilst
some operate double shifts in selected areas such as machining, press shops, paint shop
operations and body shop.
Most vehicle assembly operations were characterised by a shortened production week
during this period. With regard to employment levels in the motor vehicle component
manufacturing industry, Naacam reports that the employment fell to about 76,000 in
2008, 6% below 2007. The total employment in this industry combined is in excess of
106,000.
3.9.1.4
Import statistics
code chapter 87 (motor vehicle and related product) reflect the following:
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Table 11
2006 (“R”)
45,830,128,710.00
2007 (“R”)
56,247,708,173.00
2008 (“R”)
54,124,010,485.00
Up to Sept 2009 (“R”)
26,861,444,376.00
The top 10 exporters to South Africa of Motor vehicles and related product (2006 –
September 2009) are detailed below. The unit values of the statistics vary.
Table 12
Country
2006 (“R”)
2007 (“R”)
2008 (“R”)
Up to Sept 2009
(“R”)
1
Germany
13,070,339,193
13,542,388,553
13,469,262,242
8,346,589,878
2
Japan
8,117,358,277
9,689,724,980
10,310,585,073
4,502,419,794
3
USA
2,910,438,089
4,938,731,697
5,120,467,983
2,608,747,930
4
UK
2,913,186,852
5,210,215,343
4,905,153,544
1,362,832,668
5
Korea
3,806,776,742
4,324,998,339
2,857,114,653
1,700,328,226
6
China
1,170,830,399
3,041,162,522
3,162,262,810
944,326,443
7
Spain
2,451,315,021
2,433,292,707
1,809,973,530
751,981,515
8
India
1,923,208,860
1,416,798,712
1,239,018,100
933,730,310
9
France
1,898,289,996
1,336,849,022
1,278,935,500
727,567,665
10
Italy
989,678,753
1,194,951,482
1,370,624,108
818,920,186
The above table reflects a marginal increasing trend in the value (FOB) of imports into
South Africa year on year. China reflecting significant increase margins together with the
US and the United Kingdom.
3.9.2
3.9.2.1
Introduction
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3.9.2.2
Industry representatives indicated that illegal imports, under-declaration, round-tripping in
exports, fraud and corruption are rife in the motor vehicle and components sector. The
electronic clearance system introduced by SARS can be an effective logical and/or
logistical tool of dealing with customs clearance and fraud of motor vehicles if the
standard and universal way of capturing vehicle identification information could be applied
and adhered to.
The vehicle identification information like the VIN number, the model and colour constitute
baseline information used to describe and identify vehicles the world over, SADC countries
included.
After years of prompting by industry SARS is yet to redesign or re-programme its
electronic data capturing system to capture this standard data which is absolutely
essential in preventing crime in this sector. Cross-border crime, trading in stolen vehicle,
round-tripping would all be stamped out if SARS could capture this essential data. Police
clearance of vehicles would be easier and verifiable.
Vehicles whose identification
numbers and features have been properly captured at the point of entry of point or point
of exit would be traceable because vehicles have features which by law cannot be
tampered with e.g. the VIN number.
Equally dissatisfying to the industry is SARS insistence that vehicle information captured at
the point of entry or exit on each vehicle is confidential.
The vehicle identification
information should be made public, the industry insists, or can be made accessible to law
enforcement agencies, manufacturers, used car dealers and to industry associations to
keep tap on illegal imports and exports.
The outcomes of the homologation should also be public information as that would
indicate that an imported vehicle fully complies with local standards of vehicles on our
roads. What needs to be done to arrest and reverse the ills and problems which beset the
industry has been discussed and documented to SARS in numerous meetings and industry
submissions since 1994. The industry is still keen to be of assistance through training and
other collaborative work.
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3.9.2.3
Customs Tariff Classification
Tariff classification of components is according to identification numbers for original parts.
According to the industry, there are loopholes in the system to avoid higher duties
because no effective control exists. This leads to the government losing billions in unpaid
duties on imported parts.
Illegal imports, under-declaration, round-tripping in exports,
fraud and corruption result not only in revenue loss for the government but in job losses
as that affects local industries.
3.9.2.4
Rebate Provisions
The Motor Industry Development Programme (MIDP) is a SACU Programme designed to
develop the motor vehicle and automotive component manufacturing industry in the
region.
The programme commenced on 1st September 1995 and has been reviewed
twice since then. Participation in the MIDP is on a voluntary basis.
The Motor Industry Development Programme is designed for manufacturers of motor
vehicles and components destined for export outside the SACU region. It is split into three
(3) components i.e. Light Motor vehicle, Medium & Heavy motor vehicles and components
manufacturing. The objectives of the MIDP are to:
Improve international competitiveness of manufacturers of vehicles;
Improve adoption of technology;
Make the cost of production more affordable;
Encourage small companies; and
Enhance work opportunities.
The MIDP is based on customs duties and various rebates. The duties and rebates are
phased down until 2009 where upon they will maintain a certain value. Customs duties
are levied on imported motor vehicles and components while Import Rebate Credit
Certificates (IRCCs) are rebate permits granted for the export of SACU manufactured
motor vehicles, automotive components and certain type of tooling. 52
The programme also grants a production-asset allowance to vehicle manufacturers that
invest in new plants and equipment, giving them 20% of their capital expenditure back, in
the form of import-duty credits, over a period of five years.
52
Source: www.sars.co.za (Manufacturer MIDP
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The Automotive Production and Development Programme (APDP) replaces the motor
industry development plan (MIDP) and is aimed at facilitating growth, increasing
production, improving the domestic value chain by focusing on value addition, creating
employment and encouraging investment in the local motor vehicle industry over time. It
will run until 2020 and aims to provide the following:
Stable and moderate import tariffs from 2012 of 25% for completely built-up
vehicles and 20% for components used in vehicle assembly;
A local assembly allowance, enabling vehicle manufacturers producing more than
50 000 vehicles a year to import 20% of its components duty free, reducing to
18% over three years;
A production incentive in the form of a tradable duty credit of 55% (a rebate
provision) on the value-added element of a component, measured from the selling
price less the raw-material input.
This will reduce to 50% over five years.
However, an additional 5% would be available for vulnerable sub-sectors; and
An automotive investment allowance, which will take the form of a direct grant to
the value of 20 per cent of the project over three years to be used to support
investment into new plant and machinery.53
3.9.2.5
Special initiatives
A major purpose of the SADC Trade Protocol is to promote the development of the region
through greater economic integration. The overall growth of exports and investment in
the South African motor industry has led the SADC Committee of Ministers to ask whether
any of its benefits, especially those of the South African Motor Industry Development
Programme (MIDP) could be adapted to include other SADC Member States or to form the
basis for a SADC industrial policy in the sector. However, investigations have pointed to
the following constraints:
(a)
SADC‘s ―rules of origin‖ requiring a 40% minimum regional content in products has
led to less than favourable competitive advantage;
53
(b)
The SADC market is not sufficient to support a competitive motor industry;
(c)
The MIDP could not be replicated in any of the Member States‘
(Car today.com September 04, 2009)
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(d)
The South African government procurement policies have tended to be a hindrance
to trade and investment prospects;
(e)
A need to accelerate preferential tariff reductions on motor vehicles and
components.
3.9.2.6
Trade remedies
No trade remedies are applicable within the motor industry trade. .
3.9.2.7
Apart from an enabling legislative framework, there are 3 main measures put in place by
government to pull back some of the negative effects of crime, fraud and corruption
related to the motor vehicle industry. These are
(a)
Vehicle registration and licensing;
(b)
Police clearance; and
(c)
Vehicle roadworthy testing.
As a result of these measures, it is reported that fraud and corruption are regularly
uncovered.54 The government has also put in place the Best Practice Model (BPM) to
combat fraud and corruption related to motor vehicle registration. This system has been
designed to:
Reduce the opportunity for fraud and corruption;
Improve service delivery;
Increase revenue collection;
Increase levels of uniformity between the various agents; and
Improve levels of efficiency and effectiveness.
It is further reported that the BPM ―has proven to be extremely successful, especially
where adequately trained and competent staff and managers are employed‖ .55
54
55
Burgers, et al, 2007: 100
Burgers, et al, 2007: 101
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The second measure is one involving police clearance for all vehicles to be registered on
the National Traffic Information System (NaTIS). This has been running for many years,
with the aim of detecting stolen and illegally procured vehicles, including those brought
into the country illegally. As Burgers, et al (2007: 102) point out, police clearance of motor
vehicles may thus ―be seen as a last check to authorise the registration of high risk
vehicles.‖
The only limitation of this would be the human element – as Burgers, et al (2007: 102)
observe, it is possible for criminals to ―obtain a clearance from any clearance office with
the help of a corrupt police officer.‖ In order to redress this weakness, the concept of
‗one-stop-shop‘ has emerged – whereby the ―registering authority, a vehicle testing centre
and a police clearance office‖, are put together – ―each fulfilling their designated and
separate functions but having in place proper management, supervision and control to
integrate the different business processes‖ (Burgers, et al, 2007: 103).
The main object of this measure is to optimise the detection of stolen and illegal vehicles,
reduce fraud and corruption and improve service delivery to the public.
So far, this
approach has proven to be effective in places where it has been put into operation.
Attendant to the above measures has also been the recognition of ensuring that the NaTIS
itself is strengthened, as a platform on which all the relevant information is placed. To
achieve this, a number of measures have been undertaken – including the following:
Online registration of vehicles by banks;
Online notice of change of ownership;
Online licence renewals;
Electronic licensing (electronic licence disc);
Cross border movement of vehicles;
Biometric identification of NaTIS users;
Information sharing. (Burgers, et al, 2007: 103).
A number of other measures are under consideration, including ―electronic vehicle
identification‖ applied in concert with related systems such as automatic number plate
recognition (ANPR) and application of microdots to vehicles will offer IT and other
applications or solutions over a broad spectrum to SAPS and other members of the Border
Control Operational Coordinating Committee BCOCC‖ (Burgers, et al, 2007: 105).
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The long-awaited measures regarding permits needed for motor vehicles driven from
neighbouring countries to South Africa are yet to be implemented. Permits of vehicles
registered in neighbouring countries driven on a visit to South Africa are urgently needed
if the round-tripping, driving out new vehicles as though they were exported and driving
them back into the country to benefit from export rebates is to be stopped.
Vehicles from Botswana, Lesotho, Namibia and Swaziland at present require no permit to
enter South Africa. This has created a serious loophole in the regulatory framework which
is fully exploited for vehicle fraud and crime. The last Business Against Crime heard about
the matter from SARS after the Road Traffic Act was amended for temporary permits to be
instituted is that SARS systems were being adjusted to implement this requirement. This
delay comes after protracted negotiations for a buy-in from neighbouring countries which
has since been secured.
In 2004, the South African Cabinet took a decision in terms of which Beit Bridge had been
reclassified as a high priority point of entry.
The consequence of this was that the
Protection and Security Services Division was to take over from the border police with an
expanded personnel base – increasing the existing capacity of the border police from ten
members per shift to approximately 60 police per shift.
Irish (2005) also reported the lack of a single authority to oversee border control systems
at the Beit Bridge border post. She reported that monthly meetings were being held on a
rotational chairmanship basis amongst the various departments.
In addition line
managers of the different departments meet weekly, and joint operations are frequently
carried out. These operations focus on all forms of criminal activities and, more often
than not, involve the establishment of 24-hour roadblocks and check points around the
border area.
This, notwithstanding, a serious challenge still remains the absence of an official mandate
on the form and nature of the cooperation amongst the various departments – leading to
a situation whereby ―cooperation remains mainly dependent on individuals from the
different departments and their will to work together with their colleagues in other
departments‖ (Irish, 2005: 4).
The industry is of the view that SARS should take charge of the border as the agency
which is responsible for importation and exportation. In particular, SARS must tighten up
controls to discourage ongoing manipulation of tariffs: under-invoicing, deliberate
misclassification of imported or exported goods to attract no duty.
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The industry emphasises that as long as there is under-resourcing: under-staffing, undertraining, non-specialisation and lack of appropriate equipment, and the lack of political will
to deal with all the inefficiencies at the borders the industry local industries and local jobs
can be never be protected.
3.9.3
3.9.3.1
Illicit Trafficking of Motor Vehicles
The problem of illegal trade in the motor industry remains a major challenge in South
Africa.
Burgers, Wright and Nel (2007) present three methods used in vehicle crime,
namely:
(a)
Re-registration of stolen/hijacked vehicles (accounting for the disposal of
approximately 50% of stolen and hijacked vehicles);
(b)
Illegal exportation (approximately 30%); and
(c)
Chopping of vehicles for subsequent sale into the second-hand parts market
(accounting to approximately 20%).
Burgers, et al (2007: 104) estimate that ―30% of all stolen or hijacked vehicles are illegally
exported from South Africa, with the bulk of these passing through the land ports of
entry/exit and border lines undetected.‖
They further posit that at an average cost of
―R80,000 per vehicle, a conservative estimate of the direct financial loss to South Africans
as a result of the illegal export of stolen and hijacked motor vehicles is R2,16 billion per
year.‖ It is against this that Burgers, et al (2007: 104) observe that the relative ease with
which these stolen and hijacked motor vehicles illegally leave the country contributes
largely to the ongoing vehicle crime problem of the country.
Whilst these market
opportunities persist, there will never be a sustainable reduction in vehicle crime in South
Africa.
The implications of this are far-reaching – including (in addition to the already stated
financial loss to the economy) personal trauma, corruption of everyone (including the
youth), loss of confidence in the government and the country, a feeling of insecurity and a
negative influence on tourism (Burgers, et al, 2007: 104).
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3.9.3.2
Importing used vehicles into South Africa in contravention with legislation
Importing used vehicles into South Africa is prohibited under the International Trade
Administration Act. The importation of used vehicles and import permits are supposed to
be issued only in very specific and defined circumstances. Importation of used motor
vehicles for personal use requires that permits must be applied for through ITAC and is
subject to the following:
The vehicles must be owned and used for the period of 1 year and the imported
vehicle may not be disposed of within a period of 2 years of the said importation.;
Vehicles must be right hand drive and should comply with the South African
vehicle regulations law;
The importer must be able to present the registration documents proving
ownership.
3.9.3.3
Removal-in-transit-fraud: importation of new and used vehicle for SADC
Countries through South Africa
Most neighbouring countries rely on passage through South Africa for their imports,
including used vehicles. More than 93% of the imports into the Southern Africa region are
handled through the Durban port of entry. The volumes of second-hand vehicles imports,
mainly from Japan, transiting South Africa has increased from less than 4,000 in 1998 to
an excess of an estimated 60,000 vehicles in 2004, and in excess of 80,000 in 2009. The
port of Durban is the gateway to Southern Africa for these vehicles, as the shipping costs,
logistics and infrastructure make it the most competitive.
Our research indicates that most used vehicles imported for SADC countries from Japan
and other countries never leave South Africa. They never get to the declared countries of
destiny. SAPS have warned motorists intending to buy second-hand cars to beware of
illegally imported vehicles.
Superintendent Ronnie Naidoo from SAPS said that a large number of vehicles were being
brought into the country under false pretence. He stated that unscrupulous dealers are
acquiring these vehicles and importing them on the pretext that these vehicles are in
transit and destined for neighbouring countries that do not prohibit the importation of
second-hand vehicles.56
56
Superintendent Ronnie Naidoo, Pretoria Police, Illegally Imported Cars Flood SA, http://www.fin24.com- Mar 27 2007
104 | P a g e
Motor dealers based mainly in Durban are the main conduits for such imports. They act
as facilitators of illegal registration and many produce documentation designed to defraud
the tax collecting authorities in the destination state. Many of these vehicles are driven
illegally on our roads for protracted periods and consistent attempts are made to register
them fraudulently in RSA.
Vehicles stolen in the UK, Singapore, Japan and Australia have been found in this trade.
The depth and extent of the crime surrounding the illegal and illicit trading of vehicles in
the Durban area was captured in the following case study whose ruling has since banned
temporary permits for vehicles in transit.
Clearing Agents v MEC Transport [2007] SCA 35 (RSA): A Classical Case of Mis-declaration
and Acquittal Fraud
In a judgement delivered in March of 2007, referred to as Clearing Agents v MEC
Transport [2007] SCA 35 (RSA), it was reiterated that all motor vehicles must be
registered and licensed in accordance with the National Road Traffic Act 93 of 199657.
Regulation 84, which is one of the regulations promulgated in terms of the Act, provides
for unregistered and unlicensed vehicles to be operated on a public road temporarily
under a temporary or special permit. It was found that this regulation cannot be used to
facilitate the transport of vehicles, using their own power, from a South African port to a
neighbouring country.
Customs and Excise have recently published draft rules to incorporate this understanding
into their legislation. Rule 18.15 provides that any imported second hand road vehicle, in
transit, may not be removed under own power or towed. In other words, the vehicle
being exported may not have its wheels touching the road. The vehicle must be carried
by a licensed remover of goods.
The practice of driving an imported second hand vehicle, in transit, for export, to its
destination is thus illegal and would certainly incur severe penalties as well as the vehicle
possibly being subject to forfeiture when discovered. This ruling was appealed continuing
the legal wrangle which has been ongoing since December 2005 when the department of
Transport in KZN clamped down on the issue of the permits, alleging that the vehicles did
not meet South Africa's road worthiness standards and that, in some instances, the
roadworthy certificates were being issued before the vehicles arrived in the harbour.
57
An e-mail flyer created by Customs @ Wylie, an initiative of Shepstone & Wylie's, International Transport, Trade &
Energy Division, http://www.wylie.co.za/%7Duploads/Customs Flyer13May2008PDF.pdf, down-loaded on October 05,
2009.
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4
4.1
COUNTRY IDENTIFICATION AND MOTIVATION
4.1.1
The countries identified for benchmarking purposes were chosen between the CPG and the
Consortium by mutual agreement, after motivation of specific countries by the Consortium
and consultation with the stakeholders namely Enforcement Agencies, Business, Labour
and Government before finalisation of the choice of countries.
4.1.2
It was agreed that two developing countries and two developed countries should be
included in the study. The countries eventually agreed upon and approved were Canada,
France, India and Malaysia.
4.2
CANADA – DEVELOPED COUNTRY
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4.2.1
INTRODUCTION
Canada was chosen as a benchmarking country for this project, based on the following:
Canada Customs is the oldest law enforcement agency in the country and was
created in 1841.
Currently the Canada Border Services Agency (CBSA) is the
agency responsible for border guard and customs services;
The CBSA oversees operations at 61 land border crossings, nine international
airports and three major sea ports.
The CBSA also has a comprehensive
intelligence programme which supplies timely, accurate and relevant intelligence
support to operational decision makers;
The agency is an active member of the World Customs Organisation and is
involved in capacity building and training of customs officials in a number of
countries; and
The CBSA has had major successes with regard to customs law enforcement.
4.2.2
4.2.2.1
Canada Border Services Agency Act
The CBSA was established in terms of the Canada Border Services Agency Act on
December 12, 2003. This act outlines the responsibilities, mandate, powers, duties and
functions of the Minister responsible for the CBSA and the CBSA‘s President. In terms of
the provisions under this Act, the CBSA is responsible for providing integrated border
services that support national security priorities and facilitate the free flow of persons and
goods, including animals and plants, which meet all requirements under the program
legislation.
4.2.2.2
Customs Act
One of the key pieces of legislation governing the CBSA‘s mandate is the Customs Act.
The Customs Act was first enacted in 1867 with the following purpose:
To ensure the collection of duties;
To control the movement of people and goods into and out of Canada; and
To protect Canadian industry from real or potential injury caused by the actual or
contemplated import of dumped or subsidized goods and by other forms of unfair
competition.
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The Act provides legislative authority to administer and enforce the collection of duties
and taxes that are imposed under separate taxing legislation, such as the Customs Tariff,
the Excise Tax Act, the Excise Act and the Special Import Measures Act. The Customs Act
was revised in 1986 to maintain the original Act's three purposes and to allow for greater
flexibility in new transportation, communication, trade and business practices. Since 1986,
the Act has been amended several times in response to free trade and other related
international agreements.
In June 2009, amendments were made to support the Government of Canada's strategy to
strengthen security and facilitate trade. With these changes to the Customs Act, the CBSA
was enabled to strengthen the systems used for obtaining advance data on goods and
people arriving in Canada and to better manage risk at air and sea ports.
4.2.2.3
Other legislation
The CBSA administers more than 90 acts, regulations and international agreements on
behalf of other federal departments and agencies, the provinces and the territories.
Amongst them are:
4.2.2.4
Canada Agricultural Products Act
Fish Inspection Act
Citizenship act
Food and Drugs Act
Criminal Code
Health of Animals Act
Customs Tariff
Immigration and Refugee Protection act
Excise Act, 2001
Meat Inspection Act
Dxport and Import Permits Act
Plant Protection Act
Feeds Act
Seeds Act
Fertilizers Act
Special Import Measures Act
Agriculture and Agri-Food Administrative Monetary
Proceeds of Crime (Money Laundering) and Terrorist
Penalties Act
Financing Act
Existing Trade Agreements
North American Free Trade Agreement (NAFTA);
Canada-Israel Free Trade Agreement (CIFTA);
Canada-Chile Free Trade Agreement (CCFTA);
Canada-Costa Rica Free Trade Agreement (CCRFTA);
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Canada-EFTA Free Trade Agreement (CEFTA);
Canada-Peru Free Trade Agreement (CPFTA); and
Trade Regulations of Canada.
4.2.2.5
Importation Regulations and Requirements
Prohibited or Restricted Goods.
Items like pornographic material, weapons and
ammunition, food, plant and animal products that are not allowed into Canada or
that require a permit;
Wood Packaging. The
Government of Canada is committed to protecting Canada
from all threats, including those posed to the environment through harmful pests
and invasive alien species. As of July 5, 2006, the Canada Border Services Agency
will refuse shipments containing wood packaging that do not meet Canadian import
requirements;
Anti-dumping and Countervailing measures. The Anti-dumping and Countervailing
Program provides help to Canadian producers who face unfair foreign competition in
the Canadian market place. The CBSA is responsible for the administration of the
Special Import Measures Act (SIMA), which helps to protect Canadian industry from
injury caused by the dumping and subsidizing of imported goods;
Administrative Monetary Penalty System (AMPS). The
Administrative Monetary
Penalty System is a civil penalty regime that secures compliance with customs
legislation through the application of monetary penalties. AMPS authorizes the CBSA
to assess monetary penalties for non-compliance with customs legislative, regulatory
and program requirements. AMPS applies to contraventions of the Customs Act and
the Customs Tariff and the regulations under these Acts, as well as contraventions
of the terms and conditions of licensing agreements and undertakings. The CBSA
may impose monetary penalties based on the type, frequency, and severity of the
infraction. Most penalties are graduated and will take the compliance history of the
client into consideration.
AMPS does not impact businesses who comply with
customs requirements;
Food, Plant and Animal Inspections.
Travellers and commercial importers are
required to properly declare any meats, fruits, vegetables, plants, animals and plant
or animal products they bring into the country.
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4.2.3
4.2.3.1
Introduction
The CBSA provides Canadians with integrated border services that focus on two major
priorities: national security and the flow of legitimate people and goods across our
borders. The CBSA has implemented risk-management strategies to identify and intercept
high-risk people and goods.
The CBSA also works closely with its domestic and
international partners to enhance trade and better manage the risks associated with
terrorism, organized crime, war crimes and crimes against humanity.
CBSA‘s legislative, regulatory and partnership responsibilities include the following:
Administering legislation that
governs the admissibility of people and goods, plants
and animals into and out of Canada;
Detaining those people who may pose a threat to Canada;
Removing people who are inadmissible to Canada, including those involved in
terrorism, organized crime, war crimes or crimes against humanity;
Interdicting illegal goods entering or leaving the country;
Protecting food safety, plant and animal health, and Canada's resource base;
Promoting Canadian business and economic benefits by administering trade
legislation and trade agreements to meet Canada's international obligations;
Enforcing trade remedies that help protect Canadian industry from the injurious
effects of dumped and subsidized imported goods;
Administering a fair and impartial redress mechanism;
Promoting Canadian interests in various international forums and with international
organizations; and
Collecting applicable duties and taxes on imported goods.
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4.2.3.2
CBSA organizational structure
The CBSA was created in December 2003 as part of Public Safety and Emergency
Preparedness Canada (PSEPC), the lead department for protecting Canadians and
maintaining the peace and security of Canadian society.
The other organizations within PSEPC are the Royal Canadian Mounted Police (RCMP), the
Canadian Security Intelligence Service, the Correctional Service Canada, the National
Parole Board, the Commission for Public Complaints Against the RCMP, the Office of the
Correctional Investigator and the RCMP External Review Committee. The result of uniting
these organizations under one portfolio is a better integration of responsibilities among the
organizations within the Government of Canada that deal with national security,
emergency management, law enforcement, corrections, crime prevention and borders.
With the creation of the CBSA, key functions formerly carried out by three government
organizations were brought together: customs (from the Canada Customs and Revenue
Agency), intelligence and enforcement (from Citizenship and Immigration Canada) and
inspection of imports at border crossings (from the Canadian Food Inspection Agency). As
a result, the CBSA combines complementary business lines to protect public security and
facilitate and control the movement of people and goods.
4.2.4
COOPERATION
BETWEEN
ENFORCEMENT
AGENCIES
AND
RELEVANT
STAKEHOLDERS WITH REFERENCE TO ENFORCEMENT PROGRAMMES AND
INITIATIVES
Now in its sixth year of operation, the CBSA focuses on key priorities to strengthen public
security while continuing to build a smarter, more secure border. Domestically, the CBSA
administers and enforces the policies and programs of many departments and agencies
(Citizenship and Immigration Canada and the Canadian Food Inspection Agency are the
most prominent among these). The CBSA also works closely with its partners in border
security, namely the Royal Canadian Mounted Police (RCMP), the organization responsible
for border-related enforcement activities between ports of entry, as well as the Canadian
Security Intelligence Service.
Canada takes a proactive role in establishing and maintaining strong working relationships
with governments, organization and communities to foster an open dialogue for
information sharing and risk management.
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4.2.4.1
Export and Import Controls Bureau (TPI)
The Export and Import Controls Bureau (TPI) is responsible for administering the Export
and Import Permits Act (EIPA) which was first enacted in 1947. The EIPA delegates to the
Minister of Foreign Affair‘s wide discretionary powers to control the flow of goods
contained in specified lists provided for under the Act.
The Minister for International
Trade provides policy direction in most areas involving market access and trade policy.
4.2.4.2
Department of Foreign Affairs and International Trade
The Department is responsible for the issuing of import permits for goods such as textile
and clothing, agricultural and steel products, and some food items such as dairy products,
poultry, and eggs.
4.2.4.3
Royal Canadian Mounted Police
The RCMP is the Canadian national police service and an agency of the Ministry of Public
Safety Canada. The RCMP is unique in the world since it is a national, federal, provincial
and municipal policing body.
The RCMP provides a total federal policing service to all Canadians and policing services
under contract to the three territories, eight provinces (except Ontario and Quebec), more
than 190 municipalities, 184 Aboriginal communities and three international airports. The
Royal Canadian Mounted Police enforces laws made by, or under, the authority of the
Canadian Parliament throughout Canada. Administration of justice within the provinces,
including enforcement of the Criminal Code, is part of the power and duty delegated to
the provincial governments.
4.2.4.4
Other Government Departments (OGD) Interface
The OGD Interface is a joint initiative between the CBSA and other government
departments (OGDs) and agencies wishing to receive release information electronically on
commercial import data. Instead of presenting documentation at the ports of entry offices
importers and brokers who have gone through the required testing can send transactions
with OGD requirements electronically.
The Canada Food Inspection Agency (CFIA), Transport Canada and Natural Resources
Canada participate in the programme.
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4.2.4.5
CFIA/ACROSS Interface
The Canadian Food Inspection Agency (CFIA)/ACROSS interface allows importers and
brokers to transmit release information on CFIA-regulated goods to the CBSA that in turn
transmits this information to the CFIA. Once the CFIA has made its decision regarding the
admissibility of the goods, the CFIA transmits its decision directly to the CBSA inspector.
The CBSA then makes a final decision.
The benefits of this interface include the following:
Simplified release process for agricultural goods;
Reduced paper burden;
Increased accessibility to
EDI for release of agricultural goods;
Consistent treatment of imports with CFIA requirements;
Increased focus on high-risk shipments; and
Provision of timely release information for matching and tracking purposes.
The Automated Import Reference System (AIRS) is an important part of the CFIA/ACROSS
interface.
Through this system, importers and brokers have easy access to current
information on agricultural import requirements. The system also allows them to quickly
determine the additional data (codes) that must be included in the EDI release message.
4.2.4.6
Customs Self Assessment Programme (CSA)
The CBSA launched the Customs Self Assessment (CSA) programme in December 2001.
The program was developed as one of the Customs Action Plan initiatives to enhance the
CBSA‘s effectiveness in processing an increasing volume of goods crossing the border.
The CSA program was designed to provide low-risk, pre-approved companies that have a
history of good compliance, with an expedited border clearance option and streamlined
accounting and payment processes for imported goods.
The CSA border clearance option is available only to imported goods entering the country
from the United States. The vast majority of CSA releases take place at land border posts.
To use the CSA clearance option, the goods must be imported by a CSA-approved
importer. Goods entering Canada by highway must be transported by a CSA-approved
carrier that is using a driver who is registered under the Free and Secure Trade (FAST)
Commercial Driver Program (in Canada and the U.S.) and the Commercial Driver
Registration Program (in Canada only). CSA clients, who are also approved as part of the
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FAST program, can also benefit by using designated FAST express lanes upon arrival at
the border.
Shipments cleared through the CSA process, like all other shipments, may be subject to
examination. In principle CSA shipments are subject to fewer examinations than non-CSA
shipments. CSA clients found to be in contravention of any acts or regulations are subject
to penalties under the Administrative Monetary Penalty System, removal from the program
or other enforcement actions depending on the severity of the infraction.
4.2.4.7
Partners in Compliance
Partners in Compliance (PIC) is a CBSA pilot project. PIC promotes partnerships between
the CBSA and industry in order for businesses to attain the highest rate of compliance with
the CBSA's trade programs (tariff classification, origin and value for duty). PIC builds on
the principles of the Customs Self Assessment (CSA) program and risk management. PIC
allows approved CSA importers to voluntarily demonstrate to the CBSA that their business
systems, internal controls and self-testing processes are effective and reliable at ensuring
their trade program compliance. Since these CSA importers are given greater recognition
for the integrity of their internal controls and business systems, the CBSA can focus its
post-release verification resources on areas of higher or unknown risk.
The first phase of the pilot is now complete. The CBSA developed a process to evaluate
the effectiveness and reliability of participants' internal controls, including self-testing.
The two original pilot participants have completed the PIC approval process. They are
now conducting their own self-testing for trade program compliance and are submitting
their results to the CBSA. In 2007-2008, the CBSA expanded the PIC pilot in a limited way
to assess its viability as a future program for various importer types and industries. Eight
eligible importers are now progressing through the expanded PIC process.
If PIC is fully implemented as a program, the CBSA expects that PIC will be available to all
CSA importers from different industry sectors and business sizes (very large, large,
medium and small).
4.2.4.8
Partners in Protection (PIP)
Partners in Protection (PIP) is a CBSA programme that obtains the cooperation of private
industry to enhance border and trade chain security, combat organized crime and
terrorism and help detect and prevent contraband smuggling. Partners in Protection (PIP)
was developed in 1995 with the primary focus of promoting business awareness and
compliance with customs regulations.
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After the events of 9/11, the PIP program's focus shifted to place greater emphasis on
trade chain security, which included urging members to improve their physical,
infrastructure and procedural security.
suggested security recommendations.
A security questionnaire was developed with
The importance of the PIP program increased
in 2002 when a PIP membership became a prerequisite to participate in the Free and
Secure Trade (FAST) program. FAST provides expedited border clearances into Canada for
pre-approved importers, carriers and drivers.
In 2007, under the Security and Prosperity Partnership of North America, the Government
of Canada announced $11.6 million in funding to strengthen the PIP program in order to
achieve mutual recognition and compatibility with the U.S. Customs-Trade Partnership
Against Terrorism (C-TPAT) program.
This milestone was reached on June 28, 2008,
when the CBSA signed an arrangement with U.S. Customs and Border Protection. The
signing of the arrangement enhances cross-border security as both countries now apply
similar security standards and similar site validations when approving companies for
membership in their respective trade security programs.
On June 30, 2008, a strengthened PIP program was introduced. It implements minimum
security requirements; mandatory site validations; denial, suspension, cancellation,
reinstatement and appeal policies and procedures; and an automated application process.
These steps to strengthen the PIP program also ensure that it is better aligned with
international standards such as the Framework of Standards to Secure and Facilitate
Global Trade (SAFE) and the Authorized Economic Operator concept of the World Customs
Organization.
It is a voluntary program with no membership fee that aims to secure the trade chain, one
partnership at a time. Industry strongly supports the PIP program and greatly values the
commitment of PIP members to do their part, together with the CBSA, to secure the
supply chain and facilitate legitimate trade.
There are two categories for participation in the PIP program namely member and
associate. A member can take advantage of the program benefits in addition to receiving
PIP program information and updates and participating in program consultations. An
associate receives PIP program information and updates and is consulted on program
changes.
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To be eligible to participate as a member in the PIP program, applicants must:
Fall within one of the authorized eligible business categories namely importer,
exporter, air carrier, rail carrier, marine carrier, highway carrier, customs broker,
courier, warehouse operator (including marine terminal operator), freight forwarder
or shipping agent;
The applicant must own or operate facilities in Canada that are directly involved in
the importation or exportation of commercial goods; or
The applicant must be a U.S. highway carrier company that is a member of or is
applying to the Free and Secure Trade (FAST) program into Canada.
In addition the applicant and its directors must be of good character and have a good
record of compliance with the CBSA.
Companies that are not eligible for PIP membership but are linked to trade in commercial
goods can become a PIP associate. Associates receive program information and updates,
and are consulted on program changes.
Potential associates can include those from
associations, companies, groups, port authorities, lawyers and consultants.
Acceptance of participation in the PIP program depends on the completion of a Security
Profile, a security review and assessment by the CBSA and the signing of a Memorandum
of Understanding.
4.2.4.9
Register of Imported Vehicles Program (Transport Canada)
The Registrar of Imported Vehicles (RIV) was created to establish and maintain a system
of registration, inspection and certification to Canadian standards of vehicles originally
manufactured for distribution in the U.S. market that are being permanently imported into
Canada.
4.2.4.10 Canada Revenue Agency and Environment Canada - Hazardous waste, Wild
Animal
and
Plant
Protection
and
Regulation
of
International
and
Interprovincial Trade Act
The Wild Animal and Plant Protection and Regulation of International and Interprovincial
Trade Act (WAPPRIITA) prohibits the import, export and interprovincial transportation of
specific species, unless the specimens are accompanied by the appropriate documents
(licences, permits). In all cases, the Act applies to the plant or animal, alive or dead, as
well as to its parts and any derived products.
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International exchange of these species is controlled, either because they are threatened
or because they could become threatened if there were no monitoring of their trade.
CITES-listed plants and animals, as well as their parts and derived products, must be
accompanied by permits in order to cross borders.
4.2.4.11 Free and Secure Trade (FAST)
The Free and Secure Trade (FAST) programme is a commercial clearance programme
designed to ensure safety and security while expediting legitimate trade across the
Canada-U.S. border. FAST is a joint initiative between the CBSA and the U.S. Customs
and Border Protection that enhances border and trade chain security while making crossborder commercial shipments simpler and subject to fewer delays.
It is a voluntary
program that allows the CBSA to work closely with the private sector to enhance border
security, combat organized crime and terrorism, and prevent contraband smuggling.
The CBSA and industry are mutually committed to maintaining the FAST program
requirements and they work together to achieve compliance and to find solutions to
problems.
All FAST program participants (drivers, carriers, importers) must undergo a risk
assessment. FAST-approved participants are identified as low risk, which allows the CBSA
to focus resources and security efforts on travelers of high or unknown risk. When a
FAST-approved driver arrives at the border, he or she presents three bar-coded
documents to the border services officer (one for each of the participating parties: the
driver, the carrier and the importer). The officer can quickly scan the bar codes while all
trade data declarations and verifications are done at a later time, away from the border.
Eligible goods arriving for approved companies and transported by approved carriers using
registered drivers are cleared into Canada or the United States with greater speed and
certainty, which reduces costs for FAST participants. Dedicated FAST lanes have been
established at a number of major border crossings. According to the CBSA the benefits of
FAST are the following:
Access to dedicated lanes (where available) for faster and more efficient border
clearance;
A streamlined process that reduces delivery times and landed costs of imports;
No need to transmit transactional data for every transaction;
Minimal documentation required to clear the border;
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Increased certainty at the border resulting in fewer delays;
A unified, ongoing partnership with the CBSA;
Promotion of Canadian competitiveness; and
Advancement of voluntary compliance and self-assessment.
4.2.4.12 The Canada-U.S. Smart Border Declaration
In the wake of the terrorist attacks in the United States on September 11, 2001, Canadian
and U.S. government departments and agencies have worked in partnership to improve
security and services on the shared border through the Smart Border Declaration.
A
collaborative 32-point action plan for identifying and addressing security risks while
expediting the legitimate flow of people and goods across the Canadian border was
created as a blueprint for the declaration. The four pillars of the Action Plan are:
Secure flow of people;
Secure flow of goods;
Secure infrastructure;
Coordination and information-sharing.
4.2.4.13 Canada-United States Cross-Border Crime Forum
The Cross Border Crime Forum (CBCF) was established in 1998. The CBCF is a joint effort
of Public Safety, the Department of Justice Canada and the U.S. Department of Justice. It
brings together senior law enforcement and justice officials from participating
organizations in Canada and the U.S.
The CBCF addresses transnational crime problems such as smuggling, organized crime,
mass marketing fraud, counter-terrorism, and other emerging cross-border issues. It also
focuses on resolving obstacles and impediments (primarily with regard to policy,
regulations and legislation) faced by law enforcement and justice officials who work on
cross-border crime issues.
4.2.4.14 Integrated Border Enforcement Teams (IBETs)
Integrated Border Enforcement Teams (IBETs) are a Canada / US initiative, which is a
combination of the intelligence and law enforcement expertise of various agencies and use
a coordinated approach to identify and stop the high risk movement of people and goods
between the ports of entry on the Canada – United States border.
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Both countries share a common border and common objectives namely to facilitate trade
and limit crime. IBETs enhance border integrity and security at their shared border by
identifying, investigating, and interdicting persons and organizations that pose a threat to
national security or are engaged in other organized criminal activity. The CBSA's role in
the IBETs initiative is to:
Provide strategic and tactical intelligence support to immigration and customs;
Liaise with the port-of-entry operations; and
Participate in the development of specialized training, joint risk assessments and
intelligence sharing.
The immigration contribution includes specialized support in the areas of national security,
organized crime, war crimes, irregular migration, anti-fraud and serious criminality, using
its intelligence network with offices in National Headquarters, five domestic regions and its
overseas migration integrity component.
The customs contribution includes expert delivery of strategic and tactical intelligence
targeting suspected businesses and individuals involved in national security, transnational
organized crime and other illicit border-related criminal activity, through specialized
national and international customs intelligence networks.
4.2.4.15 Joint Targeting Initiative (JTI)
The CBSA and U.S. Customs and Border Protection work together under the Joint
Targeting Initiative to target marine in-transit containers that arrive in Canada or the
United States while en route to the other country. CBSA officers are assigned to the ports
of Newark, New Jersey, and Seattle, Washington, to review containers destined for
Canada. U.S. CBP has assigned officers in Canadian marine ports in Vancouver, Halifax
and Montréal to review cargo destined for the United States.
4.2.4.16 Marine Trade Security
The enhancement of border security while facilitating the legitimate flow of goods are
important objectives of both Canada and the United States. The CBSA works closely with
its American counterpart, U.S. Customs and Border Protection (CBP), to achieve greater
synergy and a coordinated approach to border security. The following programs are part
of marine trade security:
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Advance Commercial Information (Phase 1: Marine Mode)
To specifically address container security, the CBSA launched the Advance
Commercial Information (ACI) marine program in April 2004. The program provides
officers with advance cargo reporting to make informed decisions about whether to
inspect a container before it arrives in Canada. For example, industry must report
marine data electronically to the CBSA 24 hours before loading shipping containers
at foreign seaports for all Canada-bound vessels (24-hour rule).
Through the
National Risk Assessment Centre, the CBSA performs risk assessments and
determines whether examinations are required in foreign ports to address any
potential security threats.
The ACI program is being delivered in phases in
accordance with the Canada-U.S. Smart Border Declaration. Subsequent phases of
ACI will focus on air, highway and rail.
Canada-U.S. Container Security Initiative Partnership Arrangement
On October 20, 2005, the CBSA and U.S. CBP signed a Container Security Initiative
Partnership Arrangement. The objective of this arrangement is to enhance marine
security by deploying CBSA officers to foreign ports so that they can pre-screen and
examine cargo containers in coordination with the host nation before the containers
arrive in Canada. This partnership with the U.S. will allow Canada to better protect
its citizens. At the same time, it supports the Canadian economy by facilitating trade
across its borders.
Canada-U.S. Joint In-Transit Container Targeting at Seaports Initiative
The Canada-U.S. Joint In-Transit Container Targeting at Seaports Initiative has 2
objectives: 1) to achieve maximum effectiveness in identifying high-risk containers
at the first point of arrival in North America, and 2) to share important lawenforcement information from both sides of the border through an exchange of
officers.
Under Action Point 18 of the Smart Border Declaration, CBSA officers are stationed
at seaports in the U.S. while CBP officers are stationed at Canadian seaports. By
working together, Canada and the U.S. can improve container inspection by jointly
targeting marine in-transit containers that arrive in Canada or the U.S. en route to
the other country. American officials have been stationed at Vancouver, Halifax and
Montreal while Canadian officials are stationed in Seattle-Tacoma and Newark. The
program simplifies the inspection process and helps avoid duplicate examinations.
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4.2.4.17 Container Security Initiative
The Container Security Initiative (CSI) is a multinational initiative that protects the main
method of global trade — containerized shipping — from being exploited or disrupted by
terrorists. It is designed to safeguard global marine trade while enabling legitimate cargo
containers to move faster and more efficiently through the supply chain to seaports
worldwide.
CSI is in partnerships with other countries to strengthen CBSA‘s ability to identify, target
and intercept potential threats before they reach Canada, and help to ensure that
Canada‘s border is the last line of defense against such threats and not the first.
Increased cooperation with these countries leads to greater awareness of legitimate trade
so that attention can be focused on detecting and interdicting high-risk shipments.
The early identification of legitimate shipments in the trade chain ensures that they are
processed in a timely and efficient manner when they arrive in Canada. CSI partnership
arrangements also strengthen each country‘s customs processes, including harmonizing
systems and processes, as well as sharing advance information, risk management
practices and other best practices and lessons learned.
CSI partnership arrangements enable the CBSA to place its officers at strategic locations in
host countries. These officers perform a number of key functions, including the following:
Coordinating the examination of high-risk containers at foreign ports;
Sharing information about potential security threats; and
Promoting data quality, which strengthens the CBSA‘s overall risk-assessment
capacity.
Through CSI partnerships, Canada is achieving a higher level of security and trade
facilitation than it would by working alone.
4.2.5
The
CBSA
carries
out
its
responsibilities
with
a
workforce
of
approximately
13,000 employees, including over 7,200 uniformed CBSA officers who provide services at
approximately 1,200 points across Canada and at 39 international locations.
The CBSA manages 119 land-border crossings and operates at 13 international
airports;
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Of these land-border crossings, 61 operate on a 24/7 basis, as well as 10 of the
international airports;
Officers carry out marine operations at major ports, the largest being Halifax,
Montréal and Vancouver, and at numerous marinas and reporting stations;
Officers also perform operations at 27 rail sites;
The CBSA processes and examines international mail at three mail processing
centres; and
The CBSA administers more than 90 acts, regulations and international agreements,
many on behalf of other federal departments and agencies, the provinces and the
territories.
The CBSA has made investments in detection technology to enhance officers‘ inspection
capacity and efficiency, with the ultimate goal of preventing contraband, dangerous and/or
restricted goods from entering Canada.
The CBSA‘s detection technologies include the
following:
X-ray systems (fixed, mobile and vans): these imaging tools detect contraband and
dangerous goods in baggage and cargo containers for all modes. Since 2001, the
inventory of x-ray technology has drastically increased to meet operational needs
and evolving technology standards;
Gamma-ray systems (mobile and pallet VACIS units): the mobile VACIS is a truckmounted gamma-ray imaging tool used on containers, rail cars, passenger vehicles
and trucks. The pallet VACIS is a stationary unit through which pallets or palletsized cargo are passed. Both display images of the density of contents;
Radiation Detection Portals are used to detect the presence of illicit radiation or
nuclear materials in marine containers. If threshold levels of radiation are exceeded,
the portals transmit an alarm to the National Risk Assessment Centre (NRAC) and
the Laboratory and Scientific Services Directorate (LSSD). NRAC is responsible for
conducting a risk assessment of the container. If the NRAC cannot negate the risk,
they will contact the LSSD for scientific advice. From there, NRAC may either negate
the risk or dispatch a carborne unit at the port;
Carborne units are radiation-monitoring systems affixed to the roof of a vehicle.
These units measure the radiation emitted and transmit the information to LSSD for
further analysis (e.g., to identify the type of isotope present);
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Electronic personal dosimeters detect dangerous levels of radiation to ensure the
safety and protection of CBSA officers. Handheld survey meters detect the source of
radiation. These tools are used in conjunction with the radiation portals and the
carborne units;
Ion spectrometry technology: both handheld and portable devices (Ionscan, Sabre
2000) are used to detect a wide variety of trace organics such as narcotics and
explosives.
The CBSA recently deployed a new device, the Itemizer 3, which is
capable of detecting both contraband and explosives simultaneously; and
Contraband Outfitted Mobile Examination Truck (COMET): the COMET units outfitted
for marine operations include equipment for deep rummage and dockside activities.
The units used in air operations are outfitted with the necessary tools to examine air
cargo and baggage.
The CBSA officers also use a wide variety of other detection tools. Such tools include
mirror kits for inspecting under the carriage of containers; probes for inspecting bulk loads
of goods; laser range finders to measure the length of containers; density gauges, and
long and short-pole reach cameras for viewing hard-to-reach places.
4.2.6
In the fiscal year 2008/09, the Criminal Investigations Program of the CBSA concluded 535
cases which resulted in 476 convictions. Court sentences imposed as a result of these
prosecutions totaled approximately CAD$549,000 in court fines (this translates to
R3,909,961.53 at the applicable exchange rate as at 11 December 2009 58). Incarceration
days during the same period amounted to over 41,000. Charges were laid in a total of
582 cases, a 20% increase over the previous year.
It must be noted that 42% of cases were brought forward under the Immigration and
Refugee Protection Act whereas charges under the Customs Act account for nearly half of
all charges brought forward.
The majority of cases are considered Port Prosecutions,
concerning single isolated incidents that arise most often at ports of entry.
Transparency International (TI) provides a useful guide as to the relative compliance
culture within Canada. The TI Corruption Perception Index (CPI) measures the perceived
level of public-sector corruption in 180 countries and territories around the world. This
survey is based on 13 different expert and business surveys. Canada was ranked 8th out
of the 180 countries for the 2009 CPI scoring 8.7.
58
http://www.x-rates.com/cgi-bin/hlookup.cgi
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The TI‘s 2008 Bribe Payers Index (BPI) placed Canada in joint first place with Belgium
with a score of 8.8 out of 10 indicting that that Canadian firms are seen as least likely to
bribe abroad.
4.2.7
Examples over the past fiscal year have included:
Smuggling of firearms (Customs Act);
False statements on undeclared meat imports (Customs and Meat Inspection Acts);
Counterfeit goods;
Illegal import of shrimp (Fish Inspection Act); and
Undeclared meat products (Health of Animals Act).
4.2.8
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4.3
FRANCE – DEVELOPED COUNTRY
4.3.1
INTRODUCTION
France is a member state of the European Union (EU), a founding member of the EU, with
a total land area of 550,000 km², and a population of 63.7 million.
advanced industrial economy and an efficient farm sector.
France has an
Main activities include
automobile manufacture, aerospace, information technology, electronics, chemicals,
pharmaceuticals and fashion.59
The European Union is a geo-political entity covering a large portion of the European
continent. It is founded upon numerous treaties and has undergone expansions that have
taken it from 6 member states to 27, the majority of states in Europe.60
59
60
http://europa.eu/abc/european_countries/eu_members/france/index_en.htm
http://en.wikipedia.org/wiki/History_of_the_European_Union
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France was chosen as a benchmarking country for this project, based on the following:
France is a developed country with well developed customs laws and administration;
France has land and sea borders which are similar to that of South Africa;
France is very involved in the World Customs Organisation and, prior to EU
incorporation had customs laws which have been in existence since before 1886;
The current Secretary-General of the WCO is a former French customs official;
It was reasonable to assume that South Africa would benefit from the knowledge,
experience and expertise of the French Customs Administration.
We contacted the French Embassy and French Consulate in South Africa, who informed us
that France no longer enforces French customs legislation in France, but rather adhere to
and enforce the EU Customs legislation and regulations. We attempted to get specific
information from French officials based in South African and France on practical
experiences relating to customs fraud within the context of the EU legislation, but received
no response, despite various written requests. As a result, the information reflected in
this report is based on a desktop exercise and reflects the customs administration rules
and policies of the EU only.
4.3.2
THE EUROPEAN UNION CUSTOMS ADMINISTRATION
The Customs Union was one of the EU's earliest milestones. It abolished customs duties
at internal borders and put in place a uniform system for taxing imports. Internal border
controls subsequently disappeared.
Customs officers are now found only at the EU's
external borders. They not only keep trade flowing, but help protect the environment and
the cultural heritage, and protect jobs by combating counterfeiting and piracy. 61
The customs union is a single trading area where all goods circulate freely, whether made
within the EU or imported from outside. Examples:
A Finnish mobile phone can be dispatched to Hungary without paying any duty and
without any customs control;
Duty on a TV from South Korea is paid when it first enters the EU, but after that
there is nothing more to pay and there are no more checks.
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Customs activity remains very important nevertheless. Customs services in the EU handle
nearly 20% of world imports. That is more than two billion tonnes of goods per year. EU
Customs process well over 100 million customs declarations annually. 62
An example of customs fraud that the EU experiences: the EU lowers its tariffs on many
imports from poor countries. Some importers try to qualify their goods for a lower tariff
by producing false certificates of origin from one of these countries. 63
4.3.3
The following is a summary of the legislation under which the European Customs Union
(ECU) operates:
4.3.3.1
EU Legislation - 02 Customs Union and free movement of goods
The EU legislation is vast and comprehensive, which prohibits us from stating each
separate piece of legislation in this report.
The following is a summary of the EU
legislation that is in force for all member states64:
General - number of acts: 11;
Statistics - number of acts: 212;
General Customs Rules - number of acts: 20;
Basic Customs Instruments - number of acts: 279;
Application of the Common Customs Tariff - number of acts: 373;
Specific Customs Rules - number of acts: 198;
Mutual Assistance - number of acts: 5;
Proceedings and Penalties - number of acts: 10; and
International Customs Cooperation - number of acts: 65.
62
63
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4.3.3.2
Customs Tariffs Classification: Combined Nomenclature, Common Customs
Tariff and Integrated Tariff of the European Communities (Taric)
Council Regulation (EEC) No 2658/87 of 23 July 1987 established a Combined
Nomenclature and created the Taric.
The Combined Nomenclature is the tariff and statistical nomenclature of the ECU. The
Common Customs Tariff is the external tariff applied to products imported into the EU.
The Integrated Tariff of the European Communities is referred to as ‗Taric‘.
Taric incorporates all EU Community and trade measures applied to goods imported into
and exported out of the EU Community.
It comprises all customs duty rates and
Community rules applicable to the Community's external trade. The European Community
customs tariff has this Regulation as its legal basis. Taric allows goods clearance by the
Member States. It also provides the best means of collecting, exchanging and publishing
data on Community external trade statistics.65
The Combined Nomenclature (CN) was established to satisfy Common Customs Tariff and
Community external trade requirements.
It is based on the Harmonised System
nomenclature and supplements it with its own subdivisions referred to as "CN
subheadings".
Common
The Combined Nomenclature is the result of the merger between the
Customs
Nomenclature).
Tariff
nomenclature
and
Nimexe
(Community
Statistical
66
The Taric is based on the Combined Nomenclature. It comprises additional Community
subdivisions, referred to as "Taric subheadings" used to describe goods and their code
number, customs duty rates depending on the origin of the goods, and many trade policy
measures.67
Each CN subheading has an eight digit code number.
The first six digits refer to the
harmonised system headings and subheadings. The seventh and eighth digits represent
the CN subheadings. The ninth and tenth digits represent Taric subheadings. 68
65
66
67
68
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4.3.3.3
EU Trade Agreements and International Conventions – with specific
reference to China
The EU has trade agreements with the following countries: 69
Canada
China
Hong Kong
India
Republic of Korea
Japan
EU/US agreements in respect of container security
We discuss the EU Agreement with China in more detail, simply because China has the
majority share in the South African import market in respect of some of the sectors
discussed.
The EU Agreement with China
Operations which breach customs legislation, including infringements of intellectual
property rights, are prejudicial to the economic and financial interests of the EU
Community and Chinese players alike. The European Union and China have concluded an
agreement to enhance cooperation between their administrative authorities.
The
advantage of such cooperation for the EU budget and the European taxpayer is clear: own
resources derive in part from customs duties.70
Applicable EU Legislation
Council Decision 2004/889/EC of 16 November 2004 deals with the conclusion of an
agreement between the European Community and the Government of the People's
Republic of China on cooperation and mutual administrative assistance in customs
matters. 71
This agreement aims to improve co-operation between the administrative authorities
responsible for the application of customs legislation. Actions to address breaches of EU
and Chinese customs legislation are more effective if it is backed up by mutual assistance
in customs matters.
69
70
71
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The operations concerned are those prejudicial to the economic, fiscal and commercial
interests of the two states: it is essential to any state to ensure the accurate assessment
of customs duties and other taxes.72
Developing customs cooperation
In terms of the agreement, the parties undertake to develop customs cooperation, in
particular by:
Establishing channels of communication;
Facilitating effective coordination between administrative authorities;
Providing for joint action on administrative matters;
Facilitating the legitimate movement of goods;
Exchanging information and expertise on customs procedures;
Providing each other with technical assistance, e.g. exchanges of personnel and
experts, training and the exchange of professional data, etc.; and
Seeking a coordinated position when customs topics are discussed in international
organisations.
Mutual administrative assistance
Under this agreement, customs authorities will assist each other by providing information
to ensure the proper application of customs legislation. This agreement, however, should
not prejudice the application of existing rules governing mutual assistance in criminal
matters. Nor should it apply to information obtained at the request of judicial authorities.
However, assistance to recover duties, taxes or fines, the arrest or detention of any
person and the seizure or detention of property is not covered by this agreement. The
agreement provides both for 1) assistance on request and 2) spontaneous assistance.
1.
Assistance on request: the requested authority must provide the applicant
authority with all information which may enable it to ensure that customs
legislation is correctly applied. Such information may relate to:
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Activities that may result in offences within the territory of the other
party, for example, the presentation of incorrect declarations or other
falsified documents;
The authenticity of official documents produced in support of a goods
declaration; and
The legality of exports and imports of goods from the territory of one of
the contracting parties to the territory of the other and the customs
procedure applied.
The requested authority must also, within the framework of its competence and at
the request of the applicant authority, take the necessary steps to ensure special
surveillance.
Surveillance relates to persons in respect of whom there are
reasonable grounds for believing that they have committed an infringement of the
customs legislation of one of the parties. It can also cover places, stocks and
goods transported, as well as means of transport that may have been used under
fraudulent conditions.
2.
Spontaneous assistance: in cases where a formal request is not possible
in view of the urgency of a situation that could involve substantial
damage to the economy, public health, public security or similar vital
interest, the parties will assist each other at their own initiative.
Requests must comply with certain requirements of form and substance in relation
to:
The formal endorsement of the applicant authority;
The action requested;
The object of and the reason for the request.
The requested authority proceeds, within the limits of its competence and
available resources, as though it were acting on its own account. It executes the
requests in accordance with the legally binding instruments applicable in its own
jurisdiction. The response must be in writing. Exceptions to the obligation to
provide assistance are allowed: assistance may be refused or may be subject to
certain requirements if it is likely to prejudice:
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The sovereignty of the People's Republic of China or that of an EU
Member State which has been requested to provide assistance;
Public order, security or other essential interests.
The agreement contains confidentiality clauses in relation to the information
provided. The agreement applies to the customs territory of the People's Republic
of China and to the territories in which the Treaty establishing the European
Communities is applied, i.e. in the 25 EU Member States. The agreement came
into force on 1 April 2005.
4.3.4
STRUCTURE OF FRENCH CUSTOMS SERVICES BODY
4.3.4.1
Introduction
The French Customs Services body consist of the following role players: 73
The National Directorate for Recruitment and Vocational Training (DNRFP) is
responsible for implementing the policy on recruitment and basic vocational and
advanced in-service training for all the customs staff (3 schools in all);
The Customs IT Centre (CID) is responsible for developing, maintaining, and running
the processing software for customs clearance and excise operations and for
developing the customs administration‘s computer applications;
The National Directorate for Foreign Trade Statistics (DNSCE) compiles and
publishes foreign-trade and balance-of-trade statistics and undertakes commissioned
statistical work for businesses;
The National Customs Intelligence and Investigations Directorate (DNRED),
specialising in serious fraud, operates throughout French customs territory
(metropolitan France and French overseas departments);
The National Judicial Customs Department (SNDJ) headed by a magistrate is staffed
by what is called ‗Judicial Customs Officers‘;
The Joint Department of Laboratories (service commun des laboratoires, SCL) forms
part of this structure.
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4.3.4.2
Employment of staff:
As of January 1 2007, French customs had a staff of 18,836 (36% of the workforce are
women) scattered across mainland and overseas France.
Customs operational departments are divided into 2 branches:
Commercial Transactions (i.e. 54% of customs workers) in charge of goods
clearance and indirect taxes; and
Surveillance (46%) in charge of monitoring people, goods in transit and means of
transport.
Further structure:
There are 12 inter-regions, with 39 regional directorates, and 4 regional coastguard
directorates,
There are 43 regional tax collection offices, 261 customs offices, 60 wine growing
centres, 302 surveillance brigades (smuggling/trafficking prevention, passenger
processing, etc.), including 238 land brigades and 64 sea brigades. 74
4.3.5
LEVELS
OF
COOPERATION
BETWEEN
ENFORCEMENT
AGENCIES
AND
Legal obligations and political commitments for police and customs cooperation arise
under the following measures:
Treaty on European Union;
Schengen Convention;
1998 Vienna Action Plan;
Conclusions of the Tampere European Council of October 1999.
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4.3.5.1
Enhancing police and customs cooperation in the European Union 75
Co-operation between EU Member States' police forces and customs administrations is
crucial to the maintenance of an area of security.
Communication from the Commission to the European Parliament and the
Council: enhancing police and customs cooperation in the European Union
[COM (2004) 376].
On 18 May 2004 the European Commission adopted the above communication to enhance
police and customs cooperation. It recommended increasing information exchange and
strengthening cross-border cooperation. It was considered necessary to create a common
culture and common instruments and methods.
The need to make progress in this policy area is highlighted by the challenges of today's
world, in particular combating terrorism.
The European Commission focused on the
following factors that adversely affect police and customs cooperation:
Nature of police work;
Lack of a strategic approach;
Proliferation of non-binding instruments;
Decision-making procedures in police and judicial co-operation in criminal matters;
Insufficient implementation of legal instruments adopted by the Council;
Lack of empirical research on police and customs cooperation;
Databases and communication systems.
The Communication did not address matters relating to judicial cooperation, administrative
assistance in customs matters concerning economic, social and environmental policies and
preventive measures; or did so only to a limited degree. Police cooperation within the
Union supplemented existing bilateral cooperation between Member States.
The AGIS
programme provided financial support for police and customs cooperation within the
European Union.
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4.3.5.2
Police co-operation76
The Commission covered and assessed the achievements of the police and other
competent services in the context of Schengen cooperation, Europol, police cooperation at
operational level, the European Police College (CEPOL) and other areas mentioned in
Article 30 of the Treaty on European Union (TEU), such as investigative techniques and
combating terrorism.
The Schengen Convention
The following articles in the Schengen Convention are considered most relevant to police
cooperation:77
Article 39 stipulates that Member States' police authorities are to assist each other to
prevent and detect criminal offences.
It finds that disputes occur because the
competences of police in the different Member States differ widely. Nevertheless, it
considers that bilateral and trilateral cooperation between Member States on the
establishment of cooperation and information exchange structures in the form of
Joint Police Stations and Police and Customs Cooperation Centres (PCCC) at internal
frontiers has made good progress. Such cooperation centres have proved effective
in addressing the "security deficits" in border regions caused by the abolition of
border controls and the fact that law-enforcement services' intervention has to stop
at the internal borders. The Vienna Action Plan calls for the extension of such crossborder cooperation;
Article 44 seeks to improve communication links such as telephone, fax and
computers in border areas. Since no data are available for cross-border operations,
the Commission cannot assess whether real communication needs remain
unattended but considers that the main obstacle to radio communications is a lack
of interoperable communication systems;
Article 45 stipulates that Member States must undertake to adopt the necessary
measures to ensure that non-nationals complete and sign registration forms and
confirm their identity by providing a valid identity document. This information can
be crucial for the police;
Article 46 gives police authorities the right to exchange information with another
Member State on their own initiative to prevent crime and threats to public order;
76
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Articles 93 are intended to maintain public order and security, including security of
the State, through information exchange via the Schengen Information System
(SIS). In 1999, ten Member States were using the SIS and their number has now
grown to 17. The current SIS was conceived for only 18 users and the ten Member
States that acceded on 1 May 2004 must be connected in the future.
The
Commission has therefore been entrusted with the development of a secondgeneration SIS (SIS II). It considers that the SIS is crucial to police cooperation in
Europe;
The other articles of the Schengen Convention establish cooperation instruments
concerning discreet surveillance of a suspect (Article 40) and where a person is
caught in the act and avoids arrest by crossing international borders (Articles 41-43).
The Commission finds that these instruments are rarely used. 78
Cooperation within Europol
Various measures concerning Europol have been implemented, producing mixed results,
however. For example, a protocol extending Europol's competence to money laundering
was adopted by the Council in 2000, but nine Member States had yet to ratify it on the
date of the Communication. Moreover, the reluctance of Member States to transmit
information and intelligence to Europol is hampering its operational development.
The Communication reviews progress achieved through signing cooperation agreements
with third countries, such as the United States, following the events of 11 September. The
Commission notes that a key prerequisite for Europol's effective functioning will be the
existence of the Europol Information System (EIS), which Europol has been working on for
the past few years. The EIS will allow decentralised storage and retrieval of information
on organised crime held by Member States.
The Commission has made recommendations to improve democratic control of Europol. It
takes the view that an awareness programme is essential to improve mutual
understanding and cooperation between Europol and the Member States' law-enforcement
services.
The Task Force of EU Police Chiefs
The Tampere European Council called for the establishment of a "European Police Chiefs
Operational Task Force" (TFPC) to exchange experience, best practices and information on
current trends in cross-border crime, in cooperation with Europol. It meets twice a year.
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It has taken a large number of initiatives, particularly regarding the protection of the euro,
which have, however, failed to lead to an operational added value at EU level.
The
Commission explains this lack of effectiveness by the fact that leading police officials of
the Member States usually have to deal with a great number of issues, so that European
issues are only one of many priorities. In addition, there are considerable differences in
the competences of police representatives.
In some Member States there is one national head of police, whereas in countries with
federal systems the representation is quite complex.
In addition, organisational
weaknesses have added to the problems of the TFPC's work: since only one meeting of
the Task Force is held per Council Presidency, agendas are overloaded, which does not
make for effective work.
Nevertheless, TFPC meetings are considerably improving
bilateral contacts.
The European Police College79
By decision of 22 December 2000 [Official Journal L 336 of 30 December 2000] the
Council established the European Police College (CEPOL).
CEPOL assists the national
police in increasing their knowledge of the operational structures of police in other
Member States.
In addition it aims to improve mutual understanding of Europol and
police cooperation in the EU and at international level.
CEPOL has had a difficult beginning: it lacked a budget, did not have legal personality and
faced administrative difficulties. By decision of 24 July 2004 the Council gave CEPOL legal
personality [Decision 2004/556/JAI, Official Journal L 251 of 27 July 2004]. Despite the
institution's difficult beginning considerable progress has been achieved in the following
areas:
Its range of specialised training is constantly increasing, extending from cooperation
in counter-terrorism to public order and border control at the EU's internal frontiers,
etc.;
It has set up its own CEPOL website;
It has established the European Police Learning Network (EPLN), an Internet site
offering virtual police training. The Commission has supported the development of
the EPLN through the OISIN and AGIS programmes.
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The Commission noted that insufficient knowledge of foreign languages among members
of European police forces may hinder effective cooperation. CEPOL should draw up joint
programmes and courses for priority areas of policy cooperation.
Other subjects of police cooperation80
The Communication deals with other significant subject areas of police co-operation, inter
alia investigative techniques, forensic science, terrorism, public order and security of highlevel meetings.
4.3.5.3
Customs Cooperation81
Customs cooperation plays a vital role in combating serious international crime such as
elicit traffic in drugs, weapons, munitions, explosive materials, the theft of cultural goods,
materials or equipment intended for the manufacture of atomic, biological and/or chemical
weapons, etc.
The Vienna Action Plan sets out more specific aims for customs cooperation, in particular
the ratification of the following:
Convention on mutual assistance and co-operation between Member States: the
Commission considers that the Member States do not make sufficient use of the
special forms of cooperation such as hot pursuit, cross-border surveillance, etc.
provided for in the Convention;
Convention on the use of information technology for customs purposes: the
Commission, with the support of the Member States, has made good progress with
the technical development of the database.
It calls on the Member States to
supplement the CIS database.
Customs cooperation was introduced into the intergovernmental part of the Maastricht
Treaty on European Union in 1992.
However, an important element in customs
cooperation is found in Article 135 of the Treaty establishing the European Community,
which authorises the Council, acting on the Commission's proposal, to take measures to
strengthen customs cooperation between Member States.
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4.3.5.4
Progressing Towards Effective Cooperation 82
The Commission is focusing on the following improvements:
The nature of police work: police work goes to the heart of what constitutes a
sovereign State.
It is therefore understandable that States are reluctant to
participate in international arrangements which encroach on national sovereignty.
The Commission hopes to build up a culture of trust and cooperation with the
competent authorities for sharing information that is essential for international
cooperation. It considers it essential to designate central national contact points for
the international exchange of information. Member States must have an electronic
system for the safe and rapid exchange of information. Technical investigative tools
facilitating cooperation must be used effectively by the judicial authorities;
Strategic approach: the Commission regrets the lack of a strategic approach. Thus
every Council Presidency defines a set of priorities according to its own priorities.
The requirement of unanimity in decision-making in this area slows progress even
more. The Convention on the future of Europe proposes improved decision-making
mechanisms;
Proliferation of non-binding instruments: a problem with intergovernmental
cooperation remains the non-binding nature of the instruments approved, such as
recommendations. If Member States consider a given subject important enough to
be discussed at Council level, then such discussions should result in measures which
are effectively implemented by all;
Decision-making procedures: the Commission considers that the slow progress in
police and customs cooperation can be linked to the decision-making rules. The
Council must decide by unanimity.
The right of initiative is shared between the
Commission and the Member States.
The Commission believes that the balance
achieved in the Constitutional Treaty well reflects the respective competences of the
Member States and the Union. The Constitution offers a considerable improvement
in the decision-making procedure.
It provides that decisions relating to the
framework and mechanisms for cooperation (e.g. Europol) are to be taken by
qualified majority and co-decision.
Decisions on operational cooperation (e.g.
operation by one Member State in the territory of another) remain subject to
unanimity;
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Implementation of legal instruments: the Commission is critical of the slow
implementation of legal instruments adopted by the Council. It points out that the
Laeken European Council of December 2001 reaffirmed the need for decisions taken
by the Union to be transposed quickly into national law;
Research on police and customs cooperation: the Commission finds that scientific
research into police and customs cooperation has a number of shortcomings.
Adequate funding needs to be made available for research, as a shared
responsibility of the Member States and the Union;
Cooperation between police and customs: the Commission hopes to secure more
effective coordination and communication between police forces and customs
authorities;
Databases and communication systems: a number of databases and communication
systems exist at European level. The main examples are: the EIS, the SIS, the CIS
and the Customs Files Identification Database.
between some of them.
There is a risk of duplication
The Commission also questions their interoperability.
Three possible options should be considered:

Merge the existing systems into a single "Union Information System";

Keep the systems independent and allow the creation of new systems
as required;

Investigate and implement the harmonisation of the data formats and
the respective access rules between the various systems.
4.3.6
4.3.6.1
French Customs‟ Equipment83
Vehicle fleet: 2,957 vehicles and 343 motorcycles;
Marine fleet: 2 forty-three-meter coastguard patrol boats, recently commissioned on
the Atlantic and Channel-North sea maritime facades, 20 nineteen to thirty-twometer coastguard launches, 16 ten to fourteen-meter close-surveillance launches in
charge of patrolling the coastal approach up to 24 miles offshore, 3 training vessels;
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Air fleet: 12 twin-engine planes equipped to monitor approaches to territorial waters
up to 200 nautical miles away (2 are equipped with a Polmar system for remote
marine pollution detection), 5 new generation helicopters with a 12 nautical mile
flight range (zone of the territorial waters), to detect suspicious vessels and guide
coastguard launches to their location so the vessels can be controlled;
Detection equipment: 17 particle detectors, 2 mobile scanning vehicles, 79 density
meters, 1 X-ray machine for containers, 48 radioactivity detectors, 64 X-ray
machines for customs/safety inspections of hold luggage;
In addition, 252 dog-handler teams assigned to drug and explosive detection, 224
motorcycle officers, 169 pilots and flight engineers, 615 seamen.
4.3.6.2
EU view on detection technologies
Detection technologies in the work of law enforcement, customs and other
security services84
The Green Paper85 discussed below aimed to stimulate partnerships between public and
private sectors regarding the development of detection technologies to improve European
policy in this area.
Green Paper the Commission on 1 September 2006, on detection technologies
in the work of law enforcement, customs and other security services [COM
(2006) 474 final]
The fight against crime and terrorism is an important element of European security policy.
To combat terrorism and other forms of crime, security services and police authorities rely
on detection technologies, for example to protect the borders, check the importation of
goods and safeguard private property and infrastructure.86
Public-Private Partnership
This Green Paper aims to encourage the development of detection technologies to
improve European policy in this area. It aims to foster partnership between public and
private sectors in the form of joint action, better coordination and information exchange.
This will stimulate the development of a market related to technology on the certification
and interoperability of detection systems and safety devices.
84
85
86
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The dialogue between the public and private sectors should focus primarily on investments
in standardization, certification and research tools of detection.
The results should be
converted into tools, products and services necessary and appropriate that are widely
available at lower cost.87
Fundamental rights
The Green Paper stresses that the design, manufacture and use of detection systems and
related systems must fully respect fundamental rights enshrined in the Charter of
Fundamental Rights of the European Union (EU) and the European Convention on Human
Rights.88
Specific activities
A number of specific activities are planned to help improve the public-private dialogue in
the field of detection technologies to access the best tools, solutions and practices. It is
mainly active in the field:
Standardization (development of minimum standards and common) and research on
safety;
The development of flexible solutions, portable and mobile product quality, effective
and usable, and the interoperability of systems;
Dissemination of best practices, use and identification of equipment and tools (new
and existing), for example in respect of instruments of data mining and text;
Certification and testing equipment and tools; and
Work on issues that require further studies.89
4.3.7
French customs filed 102,471 reports, and significant results were recorded. The following
items were seized during 2007:90
4,600,000 counterfeit products;
49.7 tons of narcotics;
202 tons of tobacco and cigarettes;
87
88
89
90
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25,000 specimens of endangered species;
1,200 works of art;
5,991 weapons.
During the 2007 campaign, controlling safety standards, more than 1.6 million items were
controlled by customs and 187 samples were analysed (43% of them were dangerous for
consumers).
The importance of effective customs operations can be seen in the following:
Customs officers do a vital job in collecting statistics;
Their records contribute to decisions on whether to introduce limits on goods which
may be competing unfairly with EU products;
They collect trade flow data which help policymakers detect economic trends;
Customs officers make sure that anyone travelling with large amounts of cash or its
equivalent (such as bearer bonds or cheques) is not laundering money or evading
tax;
They help fight illicit traffic in people, drugs, pornography and firearms;
They support the work of the police and immigration services in combating
organised crime and terrorism.91
Customs officers are also responsible for detecting fraud in value-added tax (VAT)
declarations and payments, or the evasion of excise duties on items such as cigarettes.
Without this work by customs officers, it would be all too easy for goods to disappear into
the black economy rather than entering the tax system, or for unscrupulous
businesspeople to report fictitious trade.
By collecting money in customs duties and levies on agricultural imports, customs officers
are not just enforcing trade rules. They are making an important contribution to funding
the EU. This revenue makes up 15% of the EU budget. By fighting VAT fraud they help
safeguard the source of another 16% of the budget. At the same time, customs officers
must respect individual citizens' right to buy goods in another EU country.92
91
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Customs officers are at the front line in tackling counterfeiting of goods as diverse as
mobile phones and medicines, and piracy of items such as CDs and software in the
interests of public health and safety, and the jobs of those who work in legitimate
businesses producing these goods. This requires a keen eye for the difference between
jeans or watches genuinely made by big-name fashion houses and items that are merely
copies. EU customs officials seized 250 million counterfeit items in 2006.93
culture within France. The TI Corruption Perception Index (CPI) measures the perceived
survey is based on 13 different expert and business surveys. France was ranked 24 th out
of the 180 countries for the 2009 CPI scoring 6.9.
The TI‘s 2008 Bribe Payers Index (BPI) placed France in 9 th place out of the 22 countries
represented with a score of 8.1 out of 10 indicting that that French firms are seen as less
likely to bribe abroad.
4.3.8
AREAS OF CUSTOMS FRAUD AND ILLEGAL IMPORTS IN THE EU
The pie chart below relates to the EU, and not to France only. Since a specific period was
not provided for the back-up data supporting the pie chart, we accept that it relates to the
whole customs history of the EU. It is very useful in showing the sectors within which
customs fraud are being experienced.
Figure 6
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4.3.9
INTELLIGENCE
AND
ENFORCEMENT
ORIENTED
PROGRAMMES
AND
INITIATIVES
4.3.9.1
The role of customs in the integrated management of external borders 94
The EU is constantly working on updating and automating procedures which will smooth
trade across its internal and external borders. Within the next couple of years, customs
will become paperless.
And within a few years, the customs networks of all member
states will be fully integrated electronically, providing a ‗one-stop-shop‘ system for traders
for their customs dealings throughout the EU.95
With a view to simplifying administrative formalities while enhancing security, the
European Commission has adopted a communication on rationalising the management of
customs controls on the EU's external borders.
To do this, it suggests implementing a common approach to goods-linked risks involving
all the relevant authorities so as to concentrate controls at border posts with the greatest
risks.
The communication's objective is to enable customs authorities and other
authorities responsible for the management of goods at external borders to control
security and safety risks in a coordinated fashion without putting an excessive burden on
legitimate trade.
4.3.9.2
Communication of 24 April 2003 from the Commission to the Council,
European Parliament and the European Economic and Social Committee on
the role of customs in the integrated management of external borders
[COM(2003) 452 final - Official Journal C 96 of 21.4.2004] 96
The present customs controls applied to goods are not adequate to protect the Member
States from the growing threats to the EU at its external borders. Chief among these are:
Criminal and terrorist threats: this category includes the introduction into the EU
Community of prohibited goods such as explosives or nuclear, biological or chemical
weapons, and also smuggling or trafficking of illegal goods such as drugs, cigarettes
and counterfeit goods, often used to finance to finance terrorist organisations or
organised crime;
94
95
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Health and safety risks to consumers: this category covers the unauthorised import
of contaminated goods, narcotics and anabolic substances, and medicines and
consumer products that do not comply with Community safety standards;
Environmental and health risks: these include illegal trafficking of species of fauna
and flora in danger of extinction, radioactive matter and risks associated with the
undeclared introduction into Community territory of animal or vegetable species or
products.
At present the measures, priorities, investment, equipment and resources used to combat
these threats and protect the EU and its citizens differ from one Member State to the next.
This means that security controls are neither harmonised nor uniform at Community level,
and responses to threats at the external borders are sometimes slow.
Common,
integrated management of the external borders therefore needs to be established.97
Customs operations need to be reorganised to increase the safety of goods. Hence the
Communication proposes rationalising customs controls by identifying which ones could be
carried out at internal borders to enable controls at external borders to focus on the goods
that absolutely must be checked there for safety reasons. 98
The Commission proposes establishing a common approach to risk at the external borders.
In the end this will mean all the authorities with responsibilities relating to the safety of
goods (including customs, the police, consumer protection, health protection and
environmental protection authorities) working together to establish priorities and define
common risk profiles. The risk profiles can be used to identify the most relevant data for
risk analyses.99
In the long run this should also mean that traders will be able to electronically transmit all
data on their goods to customs for initial identification of risks.
The data should be
supplied in electronic format to facilitate their transfer, evaluation and processing.
Customs will then have to centralise the information and send it to the competent
authorities.
A single transmission channel will have to be set up for this purpose, and it should be
possible to process the information on the basis of the profiles established by all the
authorities concerned. Effective and rapid systems for information transmission between
customs and the other relevant authorities will have to be set up and operated. 100
97
99
100
98
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Because of their experience in identifying movements of goods, Customs will have to
cooperate more closely with the police in fraud investigations and have a more specific
role in policing goods.101
The material and human resources necessary to implement the approach will need to be
available at any point along the external borders. Where bulky or particularly expensive
equipment is involved, it may be found desirable to designate certain specialised border
posts to control certain well-defined types of goods, and to provide them with the
necessary special equipment.
This would make it possible to spread equipment costs
more equitably and to concentrate expertise at these specialised posts. However, such
specialisation should not create an obstacle to legitimate trade by imposing additional
costs for processing goods at posts far from their destinations. 102
The proposal presents initiatives which could be introduced for sharing data on goods
moving from one country to another to allow more effective identification of high-risk
traffic. This would allow the transfer of data received from the exporting country, where
information is easier to locate and fuller, and so accelerate customs procedures without
compromising security.
The Community should promote this principle of sharing
responsibility with its neighbours and main trade partners. The Community should also
step up export controls.103 In the interests of risk management on its external borders,
the Community should increase its cooperation with third countries and countries with
which it shares borders. Measures to support the new Member States should also be
adopted.104
4.3.10
France plays an important role in the Customs Fellowship Programme; funds the
Fellowship Programme; and is active in training programmes for other countries with
WCO.
101
102
103
104
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4.3.10.1 e-Learning courses in Customs and Taxation
The blending of electronic learning with other forms of learning is becoming well
established within Customs and Taxation training across the European Union. The
European Commission developed e-Learning courses on topics of common interest in
collaboration with customs and taxation administrations and representatives of trade. 105
Such courses support the implementation of EU legislation and ensure the dissemination
of good customs and taxation practices throughout the European Union. The courses are
used in numerous administrations and businesses.
This approach to training allows
consistent coverage of topics of common interest, provides value for taxpayers' money
and is an example of trade facilitation in operation. 106
4.3.10.2 Taxation and Customs Training Interactive Campus (TACTIC)
A web based interactive environment, the Taxation and Customs Training Interactive
Campus (TACTIC) is currently under development in a pilot phase involving a number of
participating countries. In this online environment, training administrations have the
opportunity to share training information and resources, share good training practices and
collaborate online towards the goal of achieving excellence in customs and taxation
training in European countries. Online networking of this type also facilitates the
development of collaborative training projects between countries. 107
105
106
107
http://ec.europa.eu/taxation_customs/common/elearning/general_overview/index_en.htm
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4.4
MALAYSIA – DEVELOPING COUNTRY
4.4.1
INTRODUCTION
Malaysia has one of the highest standards of living in South East Asia.
Whilst South
Africa‘s economy is ranked 25th in the world, Malaysia‘s is ranked the 29th, with a
population of just over 25 million, about half South Africa‘s. Malaysia has successfully
developed from a commodity-based economy (mainly exporting rubber and tin) to one
focused on manufacturing. Industry contributes nearly 50% to the GDP. The country has
attracted significant foreign investment which has played a significant role in the
transformation of Malaysia‘s economy.
Malaysia is well known for its openness to international trade. Foreign trade accounts for
more than double of the country‘s GDP. The top 3 export and import partners are the
USA, Singapore and Japan. The commodities mainly exported; are electrical and electronic
equipment, machinery, mineral fuels and oils, animal and vegetable oils, wood and wood
charcoal. The country mainly imports electrical and electronic equipment, machinery,
mineral fuels and oils, plastics, and iron and steel.
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4.4.2
4.4.2.1
Customs Act, 1967
This Act provides for the levy and collection of customs duties and export duties, based on
declarations presented by the importers or exporters (together with supporting
documents).
Physical examinations are also carried out at random to ascertain the
accuracy of such declarations. The collection of these duties is done at all major sea ports
and the international airports in the country.
4.4.2.2
Excise Act, 1976
In terms of this Act, excise duties are imposed on locally manufactured or assembled
goods, by Custom Offices located throughout the country. Factories producing excisable
goods are licensed under the Act; and are controlled either physically or by means of
documents by the Royal Customs and Excise Department. In factories that are physically
controlled, Customs Officers are stationed at the manufacturing premises to keep physical
account of all taxable goods produced, stored and released. In documentarily controlled
premises, weekly and monthly statements of production and releases are submitted to the
Royal Customs and Excise Department. In both types of control, duty has to be paid
before the goods are removed from the premises. The only exception to the rule is motor
vehicles where excise duty is paid at the time of sale to the buyer.
4.4.2.3
Sales Tax Act, 1972
Sales tax is payable on both imported and locally manufactured goods.
Sales tax on
imported goods is collected by the Customs Division at the import station at the time of
release from the Customs control. Manufacturers of taxable goods are required to be
licensed under this act.
Sales tax is imposed on licensees on all sales and they are
required to furnish monthly returns or statements of sales together with tax payable within
28 days of the end of the month. The Customs Department also exercises control through
the inspection of records and premises of the licensee.
4.4.2.4
Goods Vehicle Levy Act, 1983
This act was introduced to encourage local exporters to export their products through
Malaysian ports. In terms of this act, a levy is imposed on all goods vehicles leaving
Malaysia.
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4.4.2.5
Wind Fall Profit Levy Act 1998
This Act provides for the imposition of a levy on windfall profit derived from the production
of goods, and for matters connected thereto and stipulates, ―Any proper officer of
Customs shall, in addition to the duties and powers conferred under the Customs Act
1967, have all the duties and powers to enforce and ensure due compliance with the
provisions of this Act‖.
4.4.3
4.4.3.1
National Law Enforcement Agencies and Level of Resourcing
The following law enforcement agencies are represented in Malaysia.
Royal Malaysian Police;
Royal Malaysian Customs;
Malaysian Maritime Enforcement Agency;
Malaysian Anti-corruption Commission; and
Malaysian Prison Department.
4.4.3.2
Royal Malaysian Customs
The Royal Malaysian Customs [(RMC/JKDM) / (Malay: Kastam Diraja Malaysia (KDRM)] is
the government agency responsible for administrating Malaysia‘s indirect tax policy. In
this regard, the RMC / KDRM administers 7 main and 39 subsidiary laws related to its
mandate – in addition to implementing 18 other laws for other government agencies.
The Royal Malaysian Customs is governed by the Customs Act No 62 of 1967, which gave
the whole of Malaysia a single Customs law leading to the issuing of a collective tariff for
the 3 zones by the Indirect Tax Committee of the Treasury.
JKDM has the following
divisions:
Enforcement;
Compliance Management ;
Customs;
Internal Taxes;
Technical Services;
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Administrative Services and Human Resource;
Corporate Planning Division; and
Royal Malaysia Customs Academy (AKMAL).
4.4.3.3
Currently, the administrative structure of the Customs and Excise Department is headed
by a Director General, with Deputy Directors General for Enforcement and Compliance;
Customs and Internal Taxes; and Management.
JKDM‘s core business is to collect tax and in line with its vision to be a respected,
recognized and a world class Customs Administration.
JKDM‘s mission is to collect
revenue efficiently and help the expansion of trade and industry through continuous
facilitation whilst enhancing legal compliance in order to safeguard the nation‘s economic,
social and security interest.
4.4.3.4
Continuous Review
Since tax revenue constitutes 81% of the total Federal Government‘s revenue the
Government has become increasingly dependent on such revenues. In an effort to meet
its obligations, Government has been budgeting for increases in tax revenue, even though
there have been reductions in tax rates. This, according to Malaysian authorities, can only
be realised by strict compliance, voluntary compliance or through the tax laws.
Since
voluntary compliance cannot be solely relied upon, strict monitoring by the tax
administrators is, therefore enforced.
One effective way Malaysia deals with this is by way of reviews by auditors on the
effectiveness of existing revenue laws and procedures in order to identify deficiencies in
the systems – thereby enabling tax administrators to introduce controls that can
discourage, if not eliminate, tax evasion which, if unchecked, could eventually erode the
tax base.
The National Audit Department has on several occasions been instrumental in bringing
about important legislative changes in revenue administration, especially income taxes.
The Customs Act for example revealed that while importers were required by statue to
declare their imports within 30 days, there was no provision as to when the resultant duty
had to be paid. This led to abuse by several importers who delayed payment of duties by
several months.
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As a result of observations raised by the National Audit Department the Customs Act was
amended requiring importers to make payment within 14 days of the import. Several
other systemic changes in the administration of revenue laws have also been made and
will be explored.
4.4.4
COOPERATION
BETWEEN
ENFORCEMENT
AGENCIES
AND
RELEVANT
STAKEHOLDERS WITH REFERENCE TO ENFORCEMENT PROGRAMMES AND
INITIATIVES
4.4.4.1
Anti-Corruption Initiatives
Malaysia is addressing anti-corruption and integrity as a national priority in the context of
the national goal of having Malaysia as a fully developed country by 2020. Malaysia has
recently deposited its instrument of ratification to the United Nations Convention against
Corruption (UNCAC).
The UNCAC ratification by Malaysia is a testimony of the
government's commitment in promoting and strengthening measures to combat corruption
at domestic, regional and global level, in line with the national agenda to make ethics and
integrity as an integral part of society's norm and culture, said the statement.
The
ratification also reflects Malaysia's intention to be a full convention member and be
proactive in combating corruption.
Malaysia has a comprehensive legal framework and well resourced specialist investigation
and prosecution agencies to proactively combat corruption, including in customs fraud,
across Malaysia. Malaysia also conducts training and awareness campaigns for the public
and private sector in its effort to detect and prevent corruption.
Malaysia‘s Anti-Corruption Agency (ACA) has a strategic focus on utilising anti-money
laundering tools to tackle the profit motive behind bribery and corruption. This involves
close cooperation with the FIU and use of AML/CFT provisions to combat the laundering of
proceeds of corruption.
The ACA has set up the Malaysia Anti-Corruption Academy (MACA) as a regional hub for
capacity and capability building of domestic and international law enforcement officers.
4.4.4.2
Licensed Bonded Warehouse
In Malaysia, Manufacturing Bonded Warehouse is known as Licensed Manufacturing
Warehouse (LMW) established under the provision of section 65/65A of the Customs Act
1967. LMW is a type of bonded warehouse, where the manufacturing process is allowed
to be carried out to produce finished goods for export.
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Manufacturing operation therein is subject to minimal customs procedures. It is primarily
intended to cater for export oriented industries.
Customs duty exemption is given to all raw materials and components used directly in the
manufacturing process of approved produce from the initial stage of manufacturing until
the finished product is finally packed ready for export. This includes packing materials and
casings.
The list of raw materials/components that can be imported and taken to a
licensed manufacturing warehouse without payments of customs duty is issued together
with the licensed manufacturing warehouse license.
Goods subject to excise duty incorporated in the final product may be exempted from
excise duty. Application for such excise duty exemption should be made to the Treasury
for consideration.
Machinery equipment required for direct manufacturing process of
approved final products is entitled to exemption from customs duty and sales tax.
Generally, licensed manufacturing warehouse are documentarily controlled by Customs. As
such, Customs officers will not be stationed at the licensed premises.
Manufacturing process can be carried out without any time limit, but no dutiable goods
shall be brought in or taken out of the licensed premises outside the normal opening hours
without written permission from customs authority. In the case of goods for export, the
licensee or his agent is required to submit a document to the officer of Customs in charge
of the LMW concerned.
Finished goods specifically permitted to be sold in the domestic market, will be released
from the LMW on payment of whatever customs duty and sales tax to be levied thereon,
unless so exempted by the Minister of Finance. Goods to be released for domestic market
must be declared on Customs Form no. 9 for payment of duty.
4.4.5
The 2009 Corruption Perceptions Index (CPI) of Transparency International has placed
Malaysia at 56 and South Africa is 55 out of 180 countries ranked. The vast majority of
the 180 countries included in the 2009 Corruption Perceptions Index (CPI) scored below
five on a scale from 0 (perceived to be highly corrupt) to 10 (perceived to have low levels
of corruption). Malaysia‘s score is 4.5 whilst South Africa‘s is 4.7. The first Malaysia
Transparency Perception Survey, published in 2006, described integrity and transparency
in government agencies as problems that were ―acute and serious.‖
The survey also
found that the Police Force, Road Transport Departments and Customs and Excise
Department were among the least transparent agencies.
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4.4.6
4.4.6.1
False declaration of goods
The Environmental Investigation Agency (2005) reported that in the mid 1990s, it was
estimated that one third of all logging in Malaysia was illegal; ten years on the heavy
unsustainable exploitation continues, and as local forests have been clear cut for palm oil
plantations, or deforested, domestic supplies have declined. Without enough of its own
supply, Malaysia‘s timber industry has moved on to launder timber from Indonesia. The
sandalwood logs were seized from a container declared to be carrying a cargo of conveyor
belts. The operation was carried out in cooperation with the Indian High Commission in
Malaysia.
4.4.6.2
Subsidies by the Malaysian Government leads to smuggling and customs
fraud
The Malaysian government subsidizes and controls prices on a lot of essential items to
keep the prices low. Prices of items such as palm oil cooking oil, petrol, flour, bread, rice
and other essentials have been kept under market prices to keep cost of living low. In
2008, the government announced that it had spent R 40.1 billion in 2007 in subsidies to
keep prices leveled. As of 2009, 22 per cent of government expenditures were subsidies,
with petrol subsidies alone taking up 12 per cent.
Smuggling and hoarding, which leads to shortages, is a prominent problem in Malaysia
due to the subsidies. For example, cooking oil is subsidized for domestic use only. This
situation creates an environment where industrial players hoard domestic cooking oil for
industrial use.
Customs fraud is another problem with subsidized commodities. Vehicles from Thailand
come to Malaysia to smuggle cheap petrol and diesel out of the country. The government
is now looking into restructuring the fuel subsidy so that the selected needy group will
benefit from the subsidy. The government is considering removing it subsidy on diesel for
general consumers while maintaining subsidies for the right groups, for example those
involved in public transport. The government in the meantime promised cash rebates for
owners of vehicles with engine capacities of 2 liters or less, and diesel subsidies for truck
and bus operators.
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4.4.7
4.4.7.1
Royal Malaysian Customs Academy
As Malaysia moved towards political independence, there was a dire need to boost staff
performance to fulfill the needs of the country. Consequently, in August, 1956 a training
center, the Royal Malaysian Customs College, was established in Bukit Baru, Melaka.
Subsequently in 1987, following several years of research and planning, the college was
expanded; the name changed to the Royal Malaysian Customs Academy (Akademi Kastam
Diraja Malaysia or AKMAL). In summary, AKMAL‘s purpose is to:
Equip RMC staff with knowledge, skills and attitude to allow them to execute their
designated jobs following their location; and
Plan and execute scheduled training programs.
Malaysia has offered to be an ASEAN (Association of Southeast Asian Nations) Customs
enforcement training agent in an effort to strengthen cooperation and enforcement
operations in the region.
According to a representative of the Royal Malaysian Customs Academy, Mr Abdul
Rahman, "An interesting aspect of the course will be practical training where the
participants will be involved in enforcement operations like mounting roadblocks and
conducting raids. The training methodology will expose the foreign participants to our
enforcement strategies which have been recognized as among the best in the world.‖ He
also cited the smuggling of arms, drugs, dangerous chemical waste and timber as the
main challenge facing ASEAN Customs. He further stated that one good strategy to deal
with this would be strengthening regional cooperation in enforcement.
For a rapidly developing country like Malaysia, the WTO multilateral process remained the
best approach to overcome market constraints according to its position.
Bilateral and
regional trade agreements were seen as being complementary and formed the building
blocks for the multilateralism that Malaysia adopts.
4.4.7.2
Harmonised Commodity Description and Coding System
The Royal Malaysian Customs (RMC) is considering having the Harmonised Commodity
Description and Coding System, in short called the HS code, included in the cargo
manifest. The HS code is developed by the World Customs Organisation (WCO) and is
used worldwide as the basis for classifying goods, collection of Customs revenue and trade
statistics.
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Currently this information has not been made mandatory by the RMC. Many developed
nations however have made it mandatory for the HS code to be included in the manifest.
Having the HS code information in the manifest will facilitate the Royal Malaysian
Customs, other government agencies (OGA) which are involved in import / export
approvals / licensing, Zone Authorities and other relevant authorities in expediting the
clearance and release of goods imported and exported. The RMC plans to have this
proposal implemented from 1 February 2010.
Currently self-assessment system for customs declaration, valuation declaration, valuation
advice, valuation ruling, appeal, transparency, guarantee system is being utilised. A high
level of compliance to Customs Law is achieved by giving the burden of proof to the
importer.
Fraud or mistakes are detected through commodity expertise, physical
examination, post clearance audit, and scanning machines. A systematic training program
whereby new recruits are trained together with experienced officials, market intelligence,
cooperation with other enforcing agencies and reward system combined contributed to
better enforcement of customs measures.
The main challenge that the RMC faces arises from employment of ex-officers of RMC as
consultants for importers who are well versed on the internal working of the Customs.
This in some way has led to innovative ideas in tax evasion by adopting measures that are
new to the system.
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4.5
INDIA – DEVELOPING COUNTRY
4.5.1
INTRODUCTION
India‘s size is 3,287,590 square km, which is slightly more than one-third the size of the
United States. Its border countries are Bangladesh, Bhutan, Burma, China, Nepal and
Pakistan.
14,103km.
Its coastline is approximately 7,000 km long.
108
India‘s land boundaries total
Its main industries are textiles, chemicals, food processing, steel,
transportation equipment, cement, mining, petroleum, machinery and software. Its main
agricultural products are rice, wheat, oilseed, cotton, jute, tea, sugarcane, potatoes;
cattle, water buffalo, sheep, goats, poultry and fish. 109
108
109
http://www.india.travelsphoto.com/india-facts.php
http://www3.uakron.edu/worldciv/india/ind-facts.html
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4.5.2
4.5.2.1
Customs Act, 1962
Chapter – IV of the act provides for the detection of illegally imported goods and
prevention of the disposal thereof. In terms of S28D of the Act, there is a presumption
that the incidence of import duty has been passed on to the buyer (i.e. when the price of
goods is indicated for purposes of refund).
The Customs, Excise and Service Tax
Appellate Tribunal is constituted under section 129.
4.5.2.2
Customs Tariff Act, 1975
The rates at which duties of customs shall be levied under the Customs Act are specified
in the First and Second Schedules thereof.
It also contains General Rules for the
Interpretation of Import Tariff Classification of Goods and General Explanatory Notes to
Import Tariff.
Products eligible for preferential concessions must be supported by a
Certificate of Origin.110
4.5.2.3
Commencement of Customs Tariff (Amendment) Ordinance, No 1 of 2003
Central Excise Act, 1944: provides for "free trade zone" and "special economic zone". The
Tariff Commission is established under the Tariff Commission Act, 1951.
4.5.3
4.5.3.1
Board of Excise and Customs
The Central Board of Excise and Customs (CBEC) is a part of the Department of Revenue
under the Ministry of Finance. It deals with the tasks of:
Formulation of policy concerning levy and collection of Customs and Central Excise
duties;
Prevention of smuggling; and
Administration of matters relating to Customs, Central Excise and Narcotics.
110 http://www.cbec.gov.in/customs/cs-act/formatted-htmls/agmt-undr-devped.htm; http://www.cbec.gov.in/customs/csact/formatted-htmls/cs-import-rule12.htm
159 | P a g e
CBEC is the administrative authority for its subordinate organizations, including Custom
Houses, Central Excise Commissionerates and the Central Revenues Control Laboratory.
The Directorate General of Central Excise Intelligence (DGCEI), headed by the Director
General, is the apex intelligence organization under the CBEC, Department of Revenue,
Ministry of Finance; for detecting evasion of central excise duties and service tax. DGCEI
gathers intelligence relating to evasion of central excise duties and service tax and
disseminates it to the field formations.
At present DGCEI have 6 Zonal Units and 18
Regional Units.
4.5.3.2
The detailed charter of functions of DGCEI
To collect, collate and disseminate intelligence relating to evasion of Central Excise
Duties and Service Tax on all India basis;
To study the modus operandi of evasion peculiar to various excisable commodities
and to alert field formations about it;
To study price structure, marketing patterns and classification in respect of evasionprone commodities;
To supplement and coordinate the efforts of the field formations in investigations
wherever necessary;
To maintain effective liaison with enforcement agencies like Central Economic
Intelligence Bureau (CEIB), Directorate of Investigation (Income Tax), Sales Tax
Authorities, Enforcement Directorate etc;
To investigate offences involving evasion of Central Excise Duty having ramifications
in more than one Commissionerate;
To investigate complicated cases selected by the Directorate General or entrusted to
it by the Ministry; and
To examine and study the effects of various tax concessions, exemptions and
relaxations in controls and to make recommendations to the Government to ensure
that they do not become a source of evasion.
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4.5.3.3
Directorate of Revenue Intelligence (DRI) 111
Set up in 1953, the organisation was charged with the responsibility of developing
intelligence on matters connected with anti-smuggling and anti-corruption in the Customs
and Central Excise formations all over the country.
extensive.
The original brief of DRI was
There was no separate organization to deal with either evasion of central
excise duties or prevent narcotic drug trafficking. Thus, the charter of DRI, as it stood
then, encompassed all aspects of work pertaining to customs, central excise and narcotics,
which required control, direction and investigation from the Centre.
With the passage of time and the growth in the problems relating to effective control of
violations of such diverse laws, a need for specialisation and expertise arose. The result
was the creation in 1978 of a separate Directorate of Anti-Evasion (now known as
Directorate General of Central Excise Intelligence) to handle violations of Central Excise
laws; and the creation of the Central Economic Intelligence Bureau in 1985 to co-ordinate
activities amongst various enforcement agencies of the Department of Revenue.
This Directorate‘s mission is:
The collection of intelligence about smuggling of contraband goods, narcotics,
under-invoicing etc. through sources of India and abroad, including secret sources;
The analysis and dissemination of such intelligence to the field formations for action;
Working out of intelligence by the Directorate officers themselves to a successful
conclusion, where necessary‘
Keeping watch over important seizures and investigation cases;
Associating or taking over the investigations which warrant specialised handling by
the Directorate;
Guiding important investigation/prosecution cases;
Functioning as the liaison authority for exchange or information among ESCAP
countries for combating international smuggling and customs frauds in terms of the
recommendation of the ESCAP conference;
Keeping liaison with foreign countries, Indian Missions and enforcement agencies
abroad on anti-smuggling matters;
111 http://www.dri.nic.in/
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Maintaining liaison with C.B.I. and through them with the INTERPOL;
Co-ordinating, directing and controlling anti-smuggling operations on the Indo-Nepal
border;
Referring cases registered under the Customs Act to the Income Tax Department for
action under the Income Tax Act;
To keep statistics of seizures and prices/rates etc. for watching trends of smuggling
and supply required material to the ministry of Finance and other Ministries; and
To study and suggest remedies for loopholes in law and procedures to combat
smuggling.
4.5.4
LEVELS
OF
COOPERATION
BETWEEN
ENFORCEMENT
AGENCIES
AND
The DRI in its present form is a lean organisation charged essentially with the collection of
intelligence, its analysis, collation, interpretation and dissemination on matters relating to
violations of customs laws, and to a lesser extent, anti-narcotics law. In order to ensure
effective discharge of its responsibilities, DRI maintains close liaison with all the important
enforcement agencies in India like the Central Economic Intelligence Bureau, Income-Tax
department, Enforcement Directorate, Narcotics Control Bureau, Directorate General of
Foreign Trade, Border Security Force, Central Bureau of Investigation, Coast Guard, the
State
Police
authorities
and
also
with
all
the
Customs
and
Central
Excise
Commissionerates. It also maintains close liaison with the World Customs Organisation,
Brussels, the Regional Intelligence Liaison Office at Tokyo, INTERPOL and foreign Customs
Administrations.
4.5.5
The DRI functions under the Central Board of Excise and Customs in the Ministry of
Finance, Department of Revenue. Headed by Director General in New Delhi, it is presently
divided into seven zones, each under the charge of an Additional Director General, and
further sub-divided into regional units, sub-regional units and intelligence cells with a
complement of Additional Directors, Joint Directors, Deputy Directors, Assistant Directors,
Senior Intelligence Officers and Intelligence Officers.
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4.5.6
According to Global Integrity 2006, the Indian Customs Department is generally viewed as
rife with corruption, favouritism and nepotism. A significant number of companies in the
World Bank & IFC Enterprise Surveys 2006 report that they expect to give gifts to obtain
import licences.
While there has been reduction in conventional smuggling due to liberalisation of import
regime and reduction in rates of duty, there is no respite in commercial frauds by way of
mis-declaration / undervaluation of imported goods and misuse of export promotion
schemes.
Further, there is an increased threat of smuggling of narcotic drugs, foreign currency,
arms and explosives etc. due to growing nexus between smugglers and anti-national
elements. Problems such as international terrorism, narco-terrorism, money laundering,
IPR violations, cyber crimes, import of hazardous substances etc. will occupy centre stage
in the future as the emerging global threats.
There are also issues like dumping of goods which cause more concern to developing
economies like India and will, therefore, engage attention of the policymakers and
enforcement agencies alike.
culture within India. The TI Corruption Perception Index (CPI) measures the perceived
survey is based on 13 different expert and business surveys. India was ranked 84th out of
the 180 countries for the 2009 CPI scoring 3.4 reflecting an unfavorable corruption
exposure.
The TI‘s 2008 Bribe Payers Index (BPI) placed India in 19th place out of the 22 countries
represented with a score of 6.8 out of 10 indicting that that Indian firms are perceived to
routinely engage in bribery when ding business abroad.
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4.5.7
The Central Excise law and procedure has been substantially rationalized in last few years.
However evasion of Central Excise duties is still noticed. Prevalence of parallel economy,
desire of higher profits in products in which CENVAT (Central Value Added Tax) is not
available to the end user industry / buyer and pressure of market forces are some of the
most commonly noticed reasons.
Various modus operandi are adopted to evade duty depending on the risk assessment as
perceived by the evader. As per past experience, outright clandestine removal is generally
noticed in SSI sector or in cases where CENVAT is not available to end user.
Undervaluation, on the other hand, is noticed in the case of medium and large scale units
especially in case of consumer products. Commodities like chewing tobacco, gutka and
khaini are highly susceptible to evasion due to high duty structure, stiff competition and
price sensitivity.
Some other commodities like iron and steel, plastics and chemicals are also quite
vulnerable. Of late, EOUs, Area Based Exemptions and CENVAT especially through second
stage dealers have also emerged as evasion prone areas.
An analysis of the major cases (involving duty of over Rs. 10 lakhs and above) booked by
both DGCEI as well as the Commissionerates during last two years has been done and is
reflected below:
164 | P a g e
Table 13
MODUS OPERANDI ANALYSIS OF DGCEI AND COMMISSIONERATES
MODUS
OPERANDI
2004-2005
No.
of
cases
Duty
Evasion
(in Rs.
Crores)
2005-2006
No.
of
cases
Duty
Evasion
(in Rs.
Crores)
2004-2005
% of Total
2005-2006
% of Total
% Change vis-a vis
last year
No. of
Cases
Duty
Evasion
No. of
Cases
Duty
Evasion
No.
of
Cases
Duty
Evasion
Clandestine
removal
316
289.67
336
414.37
22.21
18.83
40.88
30.26
6.33
43.05
Misclassification
27
45.41
206
303.19
1.90
18.83
25.06
22.14
-48.15
378.04
Misuse
Exemption
Notification
of
161
209.13
62
83.12
11.31
13.59
7.54
6.07
-31.06
28.87
Misuse
Cenvat/Modvat
Credit
of
190
166.36
111
269.51
13.35
10.81
13.50
19.68
8.42
82.25
Undervaluation
135
387.72
14
217.08
9.49
25.20
1.70
15.85
-54.07
-78.56
Others
594
440.41
93
82.04
41.74
28.62
11.31
5.99
-84.34
-81.37
Total
1423
1538.70
822
1369.31
100.00
100.00
100.00
100.00
The above figures show that Clandestine Removal and Undervaluation are still the most favoured modus operandi by the tax-evaders.
165 | P a g e
4.5.7.1
Clandestine Removal
Clandestine removal is generally noticed in SSI sector.
The quantum of evasion is
relatively low. Involvement of less number of people in planning evasion and proximity to
the market makes the detection difficult.
Further, the incriminating documents are
generally destroyed once the goods reach destination and therefore establishing the case
becomes difficult in the courts of law.
In case of medium scale sector, meticulous planning is generally undertaken to cover up
clandestine removal.
Techniques like parallel invoicing, wrong description on invoices,
recovery of sales proceeds under the garb of other charges / commissions, creation of
dummy / fictitious sellers / buyers etc. have been noticed. Clandestine removal has been
detected mainly in commodities like pan masala / gutkha, iron & steel products, aluminum
and its products and polyester yarn.
4.5.7.2
Misuse of Exemption Notifications
Several cases of misuse of small scale exemption, as well as other exemptions from duty
were detected during the year. These include misuse of exemption notifications by certain
sectors like Export Oriented Units and Area-Based Exemptions. In several cases goods
and raw materials imported at concessional duties were diverted to the open market.
Fraudulent exports by manipulating export documents were also noticed.
Major
detections were reported in respect of woolen yarn, medicaments, ethanol blended motor
spirit and newsprint paper.
In Area Based Exemptions, instances were noticed where
goods were shown to have been manufactured by units falling in areas enjoying the
exemption whereas they were actually manufactured in other areas.
4.5.7.3
Misuse of CENVAT
Misuse of Cenvat facility continues to be a favoured method of evasion as it provides
instant credit to the manufacturer thereby helps him in saving interest on working capital
which places him in an advantageous position vis-a-vis other manufacturers.
Various
modus operandi observed in this regard included cases where the goods were not
received and only excise documents were obtained at a premium. Further, several cases
of misuse of capital goods scheme were also detected where credit had been taken in
respect of goods which were not used in manufacturing activities or were not installed in
the unit.
166 | P a g e
4.5.7.4
Undervaluation
The sensitive consumer goods sector is now assessed, in most of the cases, to the MRP
based assessment.
The scope of under valuation in these commodities has therefore
come down. Under valuation, however, has been detected in certain commodities like
plywood, block boards and engineering goods.
4.5.7.5
Misclassification
With the rationalization of tariff and imposition of uniform duty of 16% on most of the
goods, incentive for misclassification of goods for the purposes of duty evasion has come
down substantially.
However, there are still certain goods where misclassification was
resorted to, either for availing the exemption or for going out of the purview of MRP based
valuation.
Major commodities detected in this area were wiring harness, proteins,
vaccines, plastic floor coverings and papers.
4.5.7.6
Duty-Evasion Cases Detected by DRI (Scheme Wise)
Table 14 (figures in Rs)
S.No.
SCHEME
2006-07
2007-08
2008-09
No of
Cases
Duty
No of
Cases
Duty
No of
Cases
Duty
1
Under Valuation
229
178.16
207
192.58
144
509.33
2
Mis-declaration
151
109.16
63
31.26
66
100.76
3
Mis-use of
DEEC/Advance License
14
39.85
10
93.14
5
22.71
4
Mis-use of DEPB
7
49.62
9
16.20
12
7.60
5
Mis-use of EPCG
6
3.95
1
3.65
23
67.20
6
Mis-use of
EOU/EPZ/SEZ
9
33.76
6
83.35
7
34.75
7
Mis-use of End-use &
other notfn.
22
98.34
29
84.44
17
145.16
8
Drawback
34
142.92
37
12.82
7
21.80
9
Others
25
92.29
72
209.02
59
619.28
Total
497
748.05
434
726.46
340
1528.59
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4.5.7.7
Commercial Frauds
Despite a substantial reduction in the level of tariff protection in the country, commercial
frauds continue to be major enforcement concern for DRI.
As expected the intention
behind perpetration of such frauds and the modus operandi adopted have been changing.
Commercial frauds are not only limited to revenue and fiscal evasion, but may also be
conduit for trade based money laundering and the financing of terror.
The increasing globalization and expected levels of trade facilitation along with rise in
cross-border organized crime has prompted a serious rethink of the enforcement
mechanisms for combating commercial fraud. In order to effectively prevent and detect
commercial frauds, DRI has created a strategic multifaceted approach, including capacity
building and international cooperation.
The statistical analysis of the commercial frauds cases booked by DRI indicates that
undervaluation of imported goods continues to account for more than 42 percent of the
number of cases booked, even as it accounts for about one-third of the duty involvement
detected.
Mis-declaration regarding classification, description, quantity, etc. are often resorted to
along with under-valuation. However, in many cases, goods are mis-declared to
circumvent restriction or prohibition regarding import / export of certain goods. The cases
of mis-declaration of non-basmati rice booked by DRI and Customs formations were
resorted to with the objective of circumventing the prohibition on export of non-basmati
rice, as a price control measure.
Mis-use of various export promotion schemes has continued unabated. In 2008-09, there
was a significant increase in the cases of mis-use of EPCG cases to 23 vis-à-vis one in
2007-08 on account of number of cases with similar modus operandi booked by Kolkata
Unit.
4.5.7.8
IEC Frauds
Mis-use of Import-Export Code (IEC) in various manners has been detected by the DRI
and field formations in earlier years. Preliminary analysis of the cases booked by DRI had
indicated that a prominent modus operandi used by the fraudsters and smugglers alike
was the use of bogus or dummy Importer Exporter Codes (IECs) so as to minimize the
possibility of enforcement trail and thus avoid penal action.
168 | P a g e
Therefore, DRI coordinated a special drive to curb the problem of IEC misuse at selected
major customs stations with the Risk Management Division (RMD) and concerned customs
preventive Commissionerates during the latter part of 2008.
4.5.7.9
Country of Origin Frauds
―Country of Origin fraud‖ or simply ―origin frauds‖ refer to any attempt to knowingly
violate or abuse rules of origin and / or Customs documentary requirements as laid down
by prevailing law in the country concerned. Such frauds are being resorted to on account
of increasing number of bilateral/regional trade agreements or imposition of anti-dumping
duties which impose country/region-specific restrictions or bestow tariff or tariff
concessions on the basis of country of origin of the goods concerned.
4.5.7.10 Undervaluation/ Overvaluation
Modus Operandi – I: Wrong/ Non-disclosure
In an undervaluation case detected by Bangalore Zonal Unit with duty involvement of Rs.
230 crore approximately, the company was found to be maintaining different price lists for
the same items with respect to its exports from Singapore to India. The modus operandi
revealed the following:
For a transaction between Singapore branch and Indian branch, there were two
Inter Company (IC) invoices that are generated by the multinational firm, viz. Level
A and Level B invoices;
Level A invoices were issued from Singapore (Distribution Centre) to their Head
Office in Switzerland;
Level B invoices were issued from Switzerland to India;
Both these levels of invoices issued on the same date & time having common Order
No. were not disclosed to the Indian Customs by the importer;
The Level A invoices represented much higher value than the Level B invoices;
For many of the products, the documents presented to the Indian Customs
mentioned only the Level B invoice value;
The investigations also revealed that the Singapore entity had received payment
from the Swiss entity as per the invoices (Level A) raised by them for the same
goods consigned to Indian entity.
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Modus Operandi – II: Overvaluation
An interesting case of overvaluation in imports of rough diamonds/cut & polished
diamonds from Hong Kong was detected at Surat by Ahmedabad Zonal Unit. Since there
was no import duty on the rough/polished diamonds, the fraud appears to be intended to
remit the excess foreign exchange overseas, either to cover the differential cost of the
other undervalued imports or overvalued exports or to park money abroad for acquisition
of assets overseas.
The value of the consignments declared to be USD 98.95 Million (about Rs 488 Crore) was
detained on 27.11.2008. The importers had subsequently applied for amendment in the
IGM and sought to amend the declared value from USD 9,89,51,493 to a meager
USD 3,52,328.45, i.e. from Rs 488 crore to Rs. 1.74 crore.
Modus Operandi – III: Mis-declaration
In a case of mis-declaration with the intention to evade appropriate duty, Chennai Zonal
Unit found that imports of Dense Wavelength Division Multiplexing (DWDM) equipment
from China involved mis-declaring the description of goods, partly as DWDM Equipment
(Hardware) and partly as DWDM Equipment (Software), and by attributing higher value to
the software (about 70% of total value) so as to claim exemption from CVD on said value
under Notification No. 6/2006-C.E. dated 1.3.2006 (which exempts CVD on software).
The software required for the goods in question was actually embedded in the hardware
itself and is necessary for control, operation and performance of the equipment. In order
to evade customs duty by following above modus operandi, the importers took assistance
from their Japan based financer, who issued false invoices by splitting the values in the
ratio of 30:70 for hardware and software respectively, and the software was mis-declared
as customized software. The estimated duty evasion in this case is Rs 20 crore.
Modus Operandi – IV: Non inclusion of royalty
In some cases detected by different DRI Units in 2008-09 and in the previous year, noninclusion of royalty in the assessable value in respect of imports of software from a
reputed multinational company have been noticed. During this financial year, Delhi Zonal
Unit has booked a case on the software supplied by MNC supplier.
The total duty
involvement for all these cases would be Rs. 132.77 crore.
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4.5.7.11 Misuse of SEZ scheme
Mumbai Zonal Unit in coordination with the headquarters busted a group of fraudsters
misusing the provisions of Rules 28(10), 29, 46(1)(c) and 46 (1)(d) of the SEZ Rules, 2006
which allow the SEZ operators to clear the imported goods and complete the export
formalities by self-sealing and self certification. These fraudsters based at Delhi, Mumbai
and Dubai had conspired in misusing the SEZ facilities and exporting metal scrap by misdeclaring 28 them as gold ornaments while importing brand new high end gold jewellery
mis-declared as outdated and old jewellery for re-melting.
Searches conducted in Delhi and Mumbai resulted in seizure of about 108 kg. of imported
assorted high end gold jewellery along with few packages declared to contain high-end
gold jewellery ready for export from the NOIDA SEZ, which were actually found to be
bearing scrap and brass scrap totally weighing around 204 kg.
Investigations revealed that Indian jewellery retailers used to visit Dubai for purchasing
high end gold jewellery and hand them over to Dubai based supplier. The said Dubai
based supplier thereafter dispatched these individual jewellery packages in consolidated
packages to certain Noida SEZ units. The said SEZ Units after clearing the imported
jewellery items by mis-declaring them as ―outdated gold jewellery for re-melting‖, used to
dispatch the individual packages to the respective owners of the said jewellery thereby
evading duty on imported jewellery items.
Simultaneously, the SEZ units used to show their compliance of the Export Obligation by
exporting metal scrap like bearing scrap and brass scrap by mis-declaring as manufactured
gold jewellery.
Misuse of transfer of residence facility for duty evasion in import of high end luxury
vehicles attempts to import premium automobiles without payment of appropriate customs
duties by newer modus operandi continues despite of the DRI booking number of cases in
the previous years and resultant plugging of the policy loopholes.
In the cases detected by the Mumbai Zonal Unit, the following modus operandi was
adopted:
(i)
Import of several vehicles under TR facility through passengers coming from
the Middle East;
171 | P a g e
(ii)
Tampering of chassis no. /odometer of second hand vehicles that are stolen /
auctioned in Europe;
(iii)
Substantial undervaluation in import of the vehicles.
Mumbai Zonal Unit seized/ detained 32 vehicles valued Rs. 20 crore which included Toyata
Land Cruiser (LX 470), Toyota Harrier (RX-330), BMW (740 IL, 745 Li) and also a Fiat
Ducato Mini Bus. The duty evaded is to the tune of Rs 4.5 Crore approximately. Four
persons have also been arrested.
4.5.7.12 Misuse of EPCG Scheme
Kolkata Zonal Unit had initiated investigations into misuse of EPCG Scheme by 9 importers
of mining industry. These units had not installed the capital goods imported by them
under the EPCG Scheme at the addresses mentioned in the respective condition sheets.
Some of them even suppressed the name and address of the supporting manufacturer at
the time of obtaining the Licence issued by the DGFT.
Further, these capital goods were being used by third parties on hire basis in violation of
the conditions of the EPCG Licence and the provisions of the Notification No. 97/2004-Cus
dated 17.09.2004. The above importers did not have any factory / mines at the specified
addresses in their own names. In these cases, a total of 45 machines valued at Rs. 47.17
Crore (approx.) having total duty involvement of Rs. 10.60 Crore have been seized.
4.5.7.13 Containerised Cargo Frauds at ICD, Tuglakabad
DRI Hqrs detected a massive fraud in ICD, Tughlakhabad where smuggling of different
goods viz. worn cloths, electrical and electronic goods mis-declared as printed books was
being made in connivance of CHAs and Customs Officers. Out of 44 consignments, in 20
cases, the 30 consignments had been reportedly examined by the concerned officers and
given out of charge even before the consignments had actually entered into the ICD.
The EDI examination in respect of all the 44 consignments revealed that the examining
officers had reported that they had opened each of the consignments and had examined a
significant number of packages in each consignment and found the goods to be as per
invoice and they had also recorded that nothing objectionable was found in the said
books. The total duty involved is Rs. 5 crore. 31
172 | P a g e
4.5.8
INTELLIGENCE
AND
ENFORCEMENT
ORIENTED
PROGRAMS
AND
INITIATIVES
4.5.8.1
Rewards System
The Government has framed a system of rewards for people who help in the detection of
the tax evasion.
The following are a few guidelines for the people who like to help
detection of Central Excise Duty evasion/frauds:
Under the existing Reward Scheme, Government of India grants handsome rewards
to informers who provide specific information leading to seizure of goods, currency,
bullion or leads to detection of duty evasion including wrong declaration of quantity,
description, value etc;
The information has to be given in writing addressed to the Head of Department,
after affixing the signature of the person giving the information along with the lefthand thumb impression;
The information should contain details of modus operandi being adopted by the tax
evader. Details like name & address of the firm, addresses of the key persons, place
where records of clandestine clearances are secreted, details of flow of illegal funds
are considered important piece of information;
The maximum amount of reward to the informers can be as high as 20% of the duty
evasion detected plus 20% of the fine/penalty realized. There is also a provision of
sanction of advance reward in suitable cases.
4.5.8.2
ICEGATE112
ICEGATE
stands
for
the
Indian
Customs
and
Central
Excise
Electronic
Commerce/Electronic Data interchange (EC/EDI) Gateway. ICEGATE is a portal that
provides e-filing services to the trade and cargo carriers and other clients of Customs &
Central Excise Department (collectively called trading partner). At present, about 8,500
users are registered with ICEGATE.
112 http://www.icegate.gov.in/
173 | P a g e
ICEGATE is an infrastructure project that fulfils the department's EC/EDI and data
communication requirements.
Through this facility the department offers a host of
services, including electronic filing of Bill of Entry( import goods declaration) and Shipping
Bills (export goods declaration) and related electronic messages between Customs and the
trading partners using communication facilities (e-mail, web-upload & FTP) including the
communication protocols commonly used on the internet.
The airlines and shipping agents can file manifests on the internet filed using this facility.
Besides, data is exchanged between Customs and the various regulatory and licensing
agencies such as DGFT, RBI, Ministry of Steel and DGCIS. The National Import database
(NIDB) and Export Commodity Database (ECDB) for Directorate of Valuation are also
being serviced through ICEGATE.
All electronic documents / messages being handled by the ICEGATE are processed at the
Customs' end by the Indian Customs EDI System (ICES), which is running at 40 customs
locations. The ICEGATE provides for 24X7 helpdesk facility for its trading partners. To
ensure secure filing, it is proposed to use digital signatures on Bill of Entry and other
documents/ messages to be handled on the gateway.
ICEGATE is working through a
MPLS based Wide Area Network (under implementation), linking 582 department‘s
buildings all over the country.
In addition to e-filing, ICEGATE also provides host of other services like E-payment, online registration for IPR, Document Tracking status at ICEGATE and ICES, online
verification of DEPB/DES/EPCG licences, IE code status, PAN based CHA data and links to
various other important websites/information pertaining to Customs business.
4.5.8.3
Customs Risk Management System
The Director General of Systems and Data Management, Central Board of Excise &
Customs, implanted a ―Risk Management System in Customs‖ (RMS).
RMS has been
implemented in 23 major Customs ports/airports covering about 85% of India‘s
international trade. It has revolutionized the customs import clearance process by cutting
down the clearance times drastically.
174 | P a g e
Instead of routine assessment and examination of all cargo, only selected consignments
are taken up for scrutiny and examination. It is a tool to balance facilitation and
enforcement which has been widely appreciated by the trade. Due to the introduction of
RMS, the importers have greatly benefited by way of reduction in dwell time and
transaction costs, which has improved their competitiveness.
There has also been
considerable reduction in the need for physical interaction between importers and
Customs officers.
Clearances without assessment and examination and the facility of direct delivery of cargo
have been given to eligible Accredited Clients of Customs. Importers today are able to
plan their logistics and supply chain as per global standards and follows ―Just in time‖
principles.
4.5.9
CAPACITY BUILDING AND TRAINING PROGRAMS
National Academy for Customs, Excise and Narcotics (NACEN) 113
This is the main institute responsible for the co-ordination and training of customs officials
and is represented by nine regional training institutes all over the country. The latter offer
induction training, mid-term training and refurbisher courses as part of their training
schedule. The NACEN knowledge bank assimilates information from various stakeholders
of the customs department in a single forum, with the aim of availing it to all who require
it.
The Directorate (Systems and Data Management) places great emphasis on capacity
building through appropriate training. The Directorate also deputes officers for imparting
training to departmental officers and officers of other enforcement agencies on request.
Specialized training on RMS and its enforcement capacity was imparted to 30 officers in
two batches. The training was organized in coordination with the Risk Management
Division, Directorate General of Systems & Data Management, Mumbai.
113
http://www.nacen.gov.in/details.asp?mid=35
175 | P a g e
The officers attended the following training programmes / courses in India:
1.
Training programme on 'Computer & Internet Crimes' at Sardar Vallabhbhai
Patel National Police Academy, Hyderabad.
2.
Programme on Investigating Economic Crimes in Financial Markets conducted
by Indian Institute of Capital Market, Mumbai.
3.
Course on Anti-Smuggling COFEPOSA, WMD, X-Ray organized by NACEN, New
Delhi.
4.
Training on use of Risk Management System (RMS) at organized by Risk
Management Division at Mumbai.
5.
Workshop on action Plan for devising a strategy for prevention of FICN
smuggling into India organized by RBI, Lucknow.
6.
Basic training for upgradation of non-matriculate Gr 'D' staff to PB-I grade
organized by Zonal Units and Hqrs.
7.
Course on Special Economic Zone organized by NACEN, Faridabad.
8.
Programme on International Police Cooperation against Cyber Crime organized
by CBI, New Delhi.
9.
International Observer Attachment Programme organized by Royal Canadian
Mounted Police, Canada.
Officers were also deputed for the following programmes abroad: basic training to 45 nonmatriculate Group 'D' staff was imparted by the Zonal Units and Hqrs for a period of two
weeks to bridge the gap between the matriculate and non-matriculate Group 'D' staff.
The basic purpose of this training was to prepare the non-matriculate staff for the office
work and enabling them to get their pay fixed in PB-1 grade.
Officers were deputed to impart training to Customs & Central Excise Officers at NACEN,
Faridabad and its RTIs and CBI Academy, Ghaziabad. Three of the DRI officers 41 also
visited Maldives as part of Training team of Indian Customs to provide training to Maldives
Customs in the month of June 2008.
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5
GAP ANALYSIS
5.1
CRITERIA FOR BENCHMARKING
The criteria utilised for purposes of benchmarking in order to conduct the GAP analysis,
are:
5.2
a
Customs legislation and regulations
e
Prevalence of customs fraud
b
f
Areas of customs fraud and illegal
imports
c
Levels of cooperation between enforcement
agencies and relevant stakeholders
g
Intelligence
and
enforcement
oriented programmes and initiatives
d
Level of
agencies
h
Capacity building
programmes
resourcing
of
enforcement
and
training
ABRIDGED RESULTS OF THE GAP ANALYSIS PLANNING SESSION
The methodology for conducting the benchmarking exercise was as follows:
The researchers monitored broad trends through existing indicators; and
The researchers completed a checklist to identify areas of greatest vulnerability and
risk and compiled a framework of recommendations and/or actions for improvement.
The desktop review provided a synopsis of customs fraud by analyzing trends and debates
in the field. When reviewing the literature the researchers supplemented the information
with direct stakeholder interviews in order to arrive at an understanding of the domain of
scholarship.
A survey was conducted to gather both objective and subjective data,
through the use of self-administered questionnaires, and the results thereof was
incorporated into the gap analysis. The abridged version of the GAP analysis results are
attached as Annexure A to this research report.
5.3
GAP IDENTIFICATION AND RECOMMENDATIONS
The next section of the report is drafted in the same format throughout, being the
identification of the benchmarking criteria, the gap(s) identified and the corresponding
recommendation(s) for improvement.
177 | P a g e
PLEASE NOTE THAT THE RECOMMENDATIONS MAY NOT ADDRESS EACH GAP IDENTIFIED IN EACH INSTANCE, BUT MAY
CONTAIN A CONSOLIDATED RECOMMENDATION AND/OR OPTIONS FOR IMPROVEMENT.
5.3.1
REGULATORY INSTRUMENTS
5.3.1.1
Legislation
Gaps Identified
Recommendations for Improvement
a)
a)
The Customs and Excise Act of 1964 is the cornerstone
It is recommended that the first phase of overhauling the current legislative framework through the
of our customs regulatory framework and its principles
two draft Bills (referring to the Customs Control Bill and the Customs Duty Bill), be fast-tracked post
are generally in line with international best practice. It is
the February 2010 deadline for public comment.
however noted that certain sections of the Act have
become outdated in relation to modernising customs
The draft Customs Control Bill provides a legal framework for implementation of policy, processes and
control methods. This is so, not only in light of
technology proposed in terms of the Customs Modernisation Programme. Once enacted, its provisions
international customs trends, but also due to the
will meet South Africa‘s obligations in terms of the international instruments and conventions to which
increasing need to balance trade facilitation and customs
South Africa is a state party, along with key recommendations of the WCO.
control.
As regards the Draft Customs Duty Bill, its three core customs issues are tariff classification, customs
b)
Paragraphs 3.1.5.2 and 3.1.5.3 refer. Multiple agencies
valuation, and origin. Its application is dependent on the implementation of the former.
are involved in the application of the customs regulatory
provisions which leads to a lack of consistency. Customs
b)
It is recommended that MOU‘s be formalised on operational level among the various departments or
fraud issues are not addressed timeously and effectively
agencies responsible for the implementation of the regulatory framework. Key agencies include inter
as a result of a lack of communication, coordination and
alia: SARS, the DTI, ITAC, SAPS, DAFF. Such agreements should contain guidelines/prescriptions
harmonisation between the agencies (SARS, ITAC, the
based on the mandates and SOP‘s in terms of the legislation of the respective agencies for the
DTI, DAFF, SAPS) involved in implementation of the
establishment of formal structures for communication, the allocation of administration responsibilities,
various aspects of the regulatory framework. Customs
type of information-sharing required, level and frequency of consultation required and accountability
fraud issues are not dealt with timeously and efficiently
within the agencies must be assigned to specific official designations. The purpose of these
as a result of the significant restriction on information
agreements is the coordination and harmonization of customs related activities and in order to address
sharing by SARS with other agencies by Section 4 of the
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Gaps Identified
Customs and Excise Act, 1964, which deals with general
the issue of lack of timeous access to critical information impacting on the efficiency and the
duties and powers of officers in the administration and
effectiveness with which customs fraud issues are dealt with.
application of the Act. Information regarding specific
import transactions, including import documentation and
the identity of importers are not made available timeously
or withheld completely by SARS. This impacts negatively
on the efficiency and effectiveness of action against
fraudulent imports.
Section 4(3) reflects the secrecy
limitation as follows:-
―The Commissioner or any officer shall not disclose any
information relating to any person, firm or business
acquired in the performance of his duties, except in the
performance of his or her duties under this Act or by
order of a competent court.‖
c)
of the Act and Sections 22 to 24 of the draft Customs
Control Bill lead to a breakdown in effective collaboration
and thereby negatively impacting on the fight against
customs fraud and illegal importation. The usefulness of
import statistics is limited by the current format in which
they are supplied by SARS.
Official
import
statistics
We recommend the following amendments to the Draft Customs Control to address the issue of lack
of access to critical information for industry role players, as a result of SARS‘ ‗secrecy clause‘, as
follows:
Amendment of Section 22: insert a new paragraph (h) after the current last paragraph (g) to read as
follows:
―Any person or entity (based in the Republic) involved in sector-related activities, who (in the
discretion of the Commissioner) can show a legitimate interest in obtaining consignment-related
information relating to imports.‖
Amendment of Section 23(1): insert a new paragraph (f) after the current last paragraph (e) to read as
follows:
Paragraph 3.4.2.2 refers. The limitations of Section 4(3)
-
c)
are
not
given
per
consignment but only reflect the total import
quantity and value of a product from a specific
―The following information relating to imports must be made available to any person or entity (based in
the Republic) involved in sector-related activities, who can show a legitimate interest in obtaining
information relating to imports:
i.
Date of import;
ii.
Port of entry;
iii.
Country of origin;
iv.
Country of export;
v.
Description of goods imported and quantity of goods imported;
country per month or year;
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Gaps Identified
-
Details like the port of entry and the purpose code
(Warehouse
Entry,
General
Rebate,
Industrial
Rebate, and Warehouse for Export) are not made
available by SARS;
-
SARS is
prohibited from
making known
the
Rand value of goods so imported;
vii.
Purpose code; and
viii.
Identity of importer.‖
Amendment of Section 23: insert a new paragraph (3) between the current paragraph (2) and (3)
identities of individual importers.
which reads as follows:
The aforementioned import information is essential for
―An authorised representative referred to in 21(1)(f) supra, may utilise the information purely for
sector role players to monitor and analyse the imports
monitoring and fraud detection purposes.‖
of a product/s in a meaningful manner in order to
identify possible customs fraud.
d)
vi.
It is further recommended that the above import information be shared on a confidential basis through
the industry forums (representatives from business, government and labour) recommended in
Paragraph 3.4.2.1 refers. The Free on Board (Fob)
paragraph 5.3.3.2 ( c ) below, by way of MOU‘s to be formalized between the members of the forum.
value of imported products is used for customs
Such MOU‘s should contain prescriptions based on the mandates of government, labour and industry
valuation purposes. This gives rise to fraud where
representatives for the establishment of formal communication structures, the allocation of
imported products are subject to an ad valorem duty.
administration responsibilities, type and frequency of information-sharing required, procedures to be
The Fob value of imported products are manipulated to
followed when a suspect import transaction is identified, level and frequency of formal consultation
be as low as possible whilst freight, insurance and other
required and accountability within the individual members of the forum must be assigned. The purpose
costs are inflated in order to pay the lowest possible
of such agreements would be to enhance cooperation, coordination and transparency between the role
customs duty. This results in significant revenue losses
players in government, business and labour involved in dealing with customs fraud issues.
for SARS.
d)
Serious consideration should be given to the replacement of the existing customs valuation system
based on FoB import values with a system based on Cost Insurance Freight import values. Such a
change would make a significant contribution to prevent and limit customs fraud. Due to the scope of
such a change and the practicalities involved like the revision of the levels of all customs duties, a
phased approach with a cost-benefit analysis as the first step, is recommended.
e)
The recognition of the presumption of innocence as a fundamental constitutional principle has brought
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Gaps Identified
a desirable degree of clarity to the allocation of the burden of proof in criminal matters. However, it is
recommended that, with the assistance of the South African Law Reform Commission, proposals for an
amendment to the legislation be considered in order to create a presumption that incorrect
declarations are fraudulent particularly in cases of repeat offenders.
The Kyoto Convention, Annex B.1 (7) Standard states that, "The declarant shall be held responsible to
the Customs authorities for the accuracy of the particulars given in the Goods declaration and payment
of the import duties and taxes."
Drawing from best practice in the Netherlands with regards to false/incorrect declarations, goods are in
fact forfeited as opposed to penalties or fines being imposed.
ICC Guideline 39114 urges full implementation of the WTO Valuation Agreement, which has greatly
reduced the scope for import fraud by obliging all member states to accept a simple and
straightforward basis of transaction value.
The Revenue Laws Amendment Act, 2008 came into effect on 1 October 2009.
The legislative
amendment has changed the status quo with the intention that the place where goods are packed into
a container in a foreign country for export to South Africa will no longer be regarded as the port or
place of export. Therefore, the full cost of transporting goods from an exporter‘s premises to the port
or place where the goods are to be loaded onto a ship or other vehicle will be dutiable. This will bring
the national legislation in line with the WTO Valuation Agreement.
114
International Chamber of Commerce Guidelines on Customs and Trade Regulations
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5.3.1.2
Administration of Customs Tariff, including Rebate Provisions (and Rules of Origin)
Gaps Identified
a)
a)
Paragraph 3.1.5.2 refers. Significant fragmentation exists with
regards to the administration and enforcement of customs tariffs.
ITAC and DAFF with regard to communication and consultation when considering applications
Customs tariffs, trade remedies, rebate and drawback provisions
for amendment to the customs tariff. Such MOU‘s should contain guidelines/prescriptions
are contained in schedule 1 to 5 of the Customs and Excise Act of
based on the mandates in terms of the legislation of the respective agencies for the
which the Minister of Finance is the custodian. SARS administers
establishment of formal structures for communication, the allocation of administration
and enforces the Customs and Excise Act and reports to the
responsibilities, type of information-sharing required, level and frequency of consultation
Minister of Finance. Customs tariff policy is formulated by the DTI
required and accountability within the agencies must be assigned to specific official
and ITAC manages and investigates applications for rebate and
designations. The purpose of these agreements is the coordination and harmonization of
drawback permits, tariff relief and assistance, action against
customs related activities in order to enhance the efficiency and the effectiveness with which
dumping and protection for the SACU industry against unfair trade
customs fraud issues are dealt with. The establishment of an electronic interface based on the
practices.
Canadian OGD model (paragraph 4.2.4.4 refers) would facilitate the coordination and
ITAC does not sufficiently communicate or consult with SARS when
considering applications for amendment to the customs tariff.
b)
It is recommended that MOU‘s be formalised on operational level among ITAC and SARS and
harmonization between the relevant agencies.
b)
Paragraphs 5.3.1.1 (c) and 5.3.3.2 (c) refer. It is recommended that the forums consisting of
Representatives from the Department of Agriculture are seriously
representatives from business, government and labour as contained in the recommendations
concerned with the lack of communication and consultation from
in the paragraphs mentioned above, be used as a vehicle for consultations in this regard. It is
ITAC when considering applications for amendment to the customs
further recommended that MOU‘s be formalised between SARS and relevant industry
tariff on agricultural products. The lack of communication and
representative organizations with regard to communication and consultation when
consultation results in unilateral amendments to the customs tariff
considering/determining the authenticity of Rules of Origin Certificates pertaining to the
which create loopholes and opportunities for customs fraud.
importation of goods in terms of preferential trade agreements applications Such MOU‘s
Paragraph 3.8.3.3 refers. South Africa has entered into several
should contain guidelines/prescriptions for the establishment of formal structures for
bilateral and multilateral trade and development agreements.
communication, the allocation of administration responsibilities, type of information-sharing
Circumvention of the tariff as a result of preferential rates of duty in
required, level and frequency of consultation required and accountability within SARS and the
terms
problem.
industry representative organization must be assigned to specific official designations. The
Furthermore, the administration of the rules of origin is insufficient.
purpose of these agreements is to prevent the abuse of the Rules of Origin Certificates and
Importers are exploiting preferential trade agreements by re-
goods illegally entering the country at abnormally low prices against which the local industry
of
trade
agreements
has
emerged
as
a
cannot compete.
routing products through countries that benefit or have preferential
trade arrangements with South Africa. Rules of Origin certificates
c)
It is further recommended that the current application of management protocols or policy in
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Gaps Identified
are obtained fraudulently and presented to SARS officials who do
relation to Rules of Origin be revisited with a view to conducting a gap analysis against the
not have sufficient product and/or sector knowledge and accept
certificates as being authentic. This results in, among others,
c)
WTO rules, given the extensive exposures identified in the current application.
d)
It is recommended that SARS enter into consultation with ITAC and relevant industry
significant quantities of products originating from Far Eastern
representative organizations regarding an amendment to the customs tariff by substituting ad
countries like China and Thailand illegally entering South Africa at
valorem duties with specific or formula duties in sectors with an identified high prevalence of
reduced rates of customs duty.
customs fraud, in particular under-valuation. The Forums recommended under paragraphs
5.3.1.1 (c) and 5.3.3.2 (c) could be used as the vehicle for these consultations.
Paragraph 3.4.2.1 refers. During the course of the research various
role players in Government and the sectors involved expressed the
e)
It is recommended that industry representative organizations enter into consultation with
view that ad valorem duties are an incentive for customs fraud
ITAC to identify loopholes in the tariff and discuss the possibility of closing these loopholes by
because they are calculated as a percentage of the value of
equalizing the customs tariff applicable thereby preventing and limiting customs fraud. The
imported goods. Importers manipulate the value of imported
Forums recommended under paragraphs 5.3.1.1 (c) and 5.3.3.2 (c) could be used as the
products in order to minimise the customs duty payable The
vehicle for these consultations.
relevant application of specific duties in the customs tariff is
acceptable internationally and is illustrated by the customs tariff of
countries like Switzerland.
d)
Paragraph 3.4.2.2 refers. Similar products are classified under
different tariff sub-headings at varying rates of customs duty. This
creates loopholes which in turn lead to the intentional misdeclaration of imported products in order to circumvent the
customs duty payable. Importers tend to incorrectly clear the
imported products under the tariff sub-heading subject to the
lowest rate of customs duty. More often than not these actions go
unnoticed as a result of insufficiently staffed border posts or
inexperienced/untrained customs officials.
*Interesting reading:
In order to facilitate implementation of its provisions, the Revised Kyoto Convention‘s Transitional Standards and Guidelines aid governments to meet the obligations undertaken. A
Management Committee provides all contracting parties a voice in the development and administration of the agreement. Active participation and consultation by South Africa at this
forum will contribute to aligning our framework with international good practice.
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5.3.1.3
ITA Act – Import Regulations
Gaps Identified
a)
Paragraph 3.1.5.2 refers. In relation to the
application
of
the
communication and co-ordination between ITAC
MOU should contain guidelines/prescriptions based on the mandates and SOP‘s in terms of the legislation of the
and SARS with regards to the administration of
respective agencies for the establishment of formal structures for communication, the allocation of
import regulations.
This does not relate to the
administration responsibilities, type of information-sharing required, level and frequency of consultation required
issuing of import permits which are processed
and accountability within the agencies must be assigned to specific official designations. The purpose of the
electronically, but to day-to-day communication
MOU is the coordination and harmonization of customs related activities in order to enhance the efficiency and
and
the effectiveness with which customs fraud issues are dealt with.
is
there
is
demonstrated
by
changes to the SARS system that have not been
communicated
information
to
sharing
ITAC,
and
where
the
ITAC
lack
of
identifies
irregularities in relation to import transactions.
b)
The recommendation under 5.3.1.1 b) refers. It is recommended that a MOU be formalised on operational level
between SARS and ITAC with regard to the administration and implementation of the regulatory framework. The
This
Act,
a)
poor
coordination.
ITA
b)
It is recommended that SARS develop and implement a motor vehicle clearance system which allows for vital
information to be captured and shared through an electronic interface with e-NaTIS, SAPS and the Department
of Transport. To this end it is recommended that formalised MOU‘s be drafted to structure the co-ordination and
co-operation between SARS, SAPS and the Department of Transport. The MOU‘s should contain
Paragraph 3.9.2.2 refers. Documentation relating
guidelines/prescriptions based on the mandates and SOP‘s in terms of the legislation of the respective agencies
to the importation of vehicles, i.e. bill of entry,
for the establishment of formal structures for communication, the allocation of administration responsibilities,
does not allow for the electronic capture of
type of information-sharing required, level and frequency of consultation required, procedures to be followed
information essential to the identification of
when fraudulent import transactions are identified and accountability within the agencies must be assigned to
vehicles during inspections (VIN numbers, colour,
specific official designations. The purpose of the MOU is the coordination and harmonization of customs related
model and make year, new or second hand).
activities with regard to the importation of used and new motor vehicles in order to enhance the efficiency and
the effectiveness with which customs fraud issues are dealt with.
The lack of information sharing between SARS and
SAPS in relation to imported motor vehicles,
generates significant problems for SAPS when
conducting investigations in relation to stolen
vehicles and the smuggling of vehicles.
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The following international instruments are useful resources in this regard: ICC Integrity Toolkit: based on the premise that integrity and efficiency go hand in hand. It contains a set
of guidelines, along with explanatory notes, that focus on procedural elements which lessen opportunities for fraud, bearing in mind that there‘s a proclivity among dishonest traders
to seek and reward customs officials for collusion in fraudulent arrangements.
5.3.1.4
Compliance Strategy
Gaps Identified
a)
a)
There is no clear structure evident that comprehensively addresses
It is of national importance that a culture of compliance is created and continuously
a customs compliance strategy. The Customs Green Paper proposes
promoted. This will require the development of a consolidated compliance strategy
a number of initiatives that may allude to the development of such
involving all role-players in the customs environment. Such strategy should include:
strategy.
Implementing the Authorised Economic Operators strategy as soon as possible
Paragraph 3.2.4 refers. A ‗Fraud and Anti-Corruption Hotline‘ exists
(refer paragraph 5.3.1.5)
within SARS and is available internally and to the public.
Expediting the implementation of the Customs Control Bill and Customs Duty Bill
Research
indicates a very low awareness, and little understanding of the purpose
Continuous training internally and sensitization externally on the potential
of such hotline; on an internal and external level. The hotline appears to
usefulness and purpose of the SARS Fraud and Anti-Corruption Hotline
be under-utilized and external roleplayers seem to be unaware of the
Continuous policy reviews to support the changing dynamics of the customs
helpful role that the hotline can play in customs fraud prevention and
environment (refer paragraph 5.3.3.2 where the recommendation of use and
response purposes.
application of the Customs National Stakeholders Forum is discussed). Current
initiatives where customs policy is being reviewed needs to be expedited, clear
deadlines set and accountability allocated to specific official designations.
b)
Paragraph 4.5.8.1 refers. India has a formal Rewards Scheme which is a deterrent to
non-compliance. It is an attractive solution to utilise industry stakeholders to guard
each other, especially given South Africa‘s capacity constraints. However, such a
scheme would have to be strictly managed in order to avoid any malicious or capricious
reports. Ownership and control of such a measure should rest with SARS.
Accountability should be allocated to a specific official designation.
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The USA‘s Customs and Border Protection Agency fosters partnerships with global industry in pursuit of self-governance compliance programmes, such as Importer Self-Assessment
(ISA) and National Account Management. Other aspects of its compliance strategy include rulings, regulations and international verification for the expeditious flow of legitimate
imports and to ensure compliance with international trade laws. This presents a useful model to which South Africa can refer in developing and implementing its customs compliance
strategy. However, what must be borne in mind are some of the challenges faced by the US agency. These include information analysis and goods verification prior to arrival, the
performance of quality risk assessments and forging beneficial partnerships.
5.3.1.5
115
Standards on Authorised Economic Operators (AEO)
Gaps Identified
a)
a)
Paragraphs 3.1.8.1 and 3.1.4, page 25 refer. South Africa is clear
It is recommended that the South African AEO policy and implementation strategy be finalized
on its intended adoption of AEO principles in line with the WCO
as a matter of priority. Further, it should be noted that in a recent UK survey undertaken by
framework of standards. This is evident within the SARS
Deloitte116 it was revealed that almost a third of the respondents did not fully understand the
modernisation programme as well as the embedding and rolling out
benefits of subscribing to the AEO scheme. In view of the importance that South African
of new customs systems and risk engines.
stakeholders understand the AEO scheme and the benefits thereof it is further recommended
that awareness raising and training campaigns be held before the implementation of the South
b)
Whilst a number of initiatives at overhauling trader management
African model.
are evident, including the clearing up of large volumes of broker
data, single registration facilities going forward and the preferred
b)
The draft Customs Control Bill provides for fast-tracking clearance and release procedures in
trader scheme, there remains no clear policy and implementation
respect of certain categories of persons (accredited) or goods (low-value goods). The
procedure available against which to measure the success of its
implementation of the new customs management system and preferred trader scheme
adoption and its progress.
processes must be fast-tracked to support this initiative. In France, the AEO concept is an EUwide accreditation scheme, which recognises a reliable economic operator who has met
c)
115
116
Initiatives at overhauling trader management and implementing the
common criteria (compliance record, accounting and logistical systems, financial solvency and
preferred trader scheme remain pending.
safety and security) set down by the European Community. Full implementation of the systems
US Customs and Border Protection Trade Strategy Fiscal Years 2009 - 2013
The Deloitte Customs Duty Survey 2009
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Gaps Identified
will be of great benefit to SARS who will then be able to focus on non-compliance and
illegalities.
Canada has a well-functioning customs self assessment tool in line with WCO AEO principles.
India has an Accredited Clients of Customs policy.
5.3.1.6
Unique Consignment Reference (UCR) number
Gaps Identified
There is no formal framework that applies the UCR system. However,
It is recommended that SARS develops a strategy for the WCO proposals on UCR numbers to be
there are emerging trends, whereby the sharing and standardisation of
applied as widely as possible. The model applied within the IBSA agreement could form the basis of
data can be ensured to allow for ease of verification, such as:-
such a strategy. Accordingly, the UCR should be117:
i.
Paragraph 3.1.8.2 refers. SARS has embarked on a pilot project
which entails an IT solution under the auspices of the IBSA
agreement. This provides for the sharing and comparison of import
and export documentation which is an extremely valuable tool for
ii.
Applied to all international goods movements for which customs control is required
Used only as an access key for audit, consignment tracking and information and
reconciliation purposes
the early detection of irregularities like diversion and valuation fraud.
Unique at both national and international level
Paragraph 3.1.4, page 29 refers. BLNS countries – SARS have
Applied at consignment level
promoted the standardisation of systems across the BLNS countries
Issued as early as possible in the international transaction
through suggesting the adoption of TATIS, the customs border
management tool currently being implemented by SARS.
117
WCO Unique Consignment Reference (June2004) www.wcoomd.org
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5.3.1.7
Penalties and Sanctions
Gaps Identified
a)
a)
b)
Paragraph 3.6.3.3 refers. In the application of the penal provisions
with the Customs and Excise Act, penalties and sanctions are not
Stakeholder Discussion Document: Customs Administrative Monetary Penalty System
seen as a deterrent to fraud by stakeholders. It has emerged from
(‗CAMPS/EAMPS‘). According to SARS it was deemed necessary to review the current penalty
certain sources that offenders in fact make provision for fines.
policy, with a view to radical changes being made. SARS stated that this was as a result of
problems with the current penalty guideline and the changes that will be effected through its
Paragraph 3.6.3.3 refers. Repeat offenders are not managed properly
modernisation initiatives. In addition, as part of the modernisation programme, an electronic
insofar as the imposition of increased penalties is concerned.
penalty system is also being developed, which will result in penalties being finalised in a
Exacerbating this is the fact that:
shorter period and in a more efficient way. It is recommended that this process be fasttracked and accountability within SARS be pinpointed to specific official designations.
Paragraph 3.2.5 refers. No records exist that adequately detail
b)
trader compliance.
Paragraph 3.2.5 refers.
initiative can be supported through the application of section 86(a) of the Customs and Excise
Act which allows SARS to publish the names of offenders, particulars of the offence, the
trader detail is unknown.
amount of duty involved and particulars of the fine or sentence imposed at conclusion of
judicial proceedings.
Paragraph 3.1.4, page 28 refers. Enforcement records are kept
which detail investigations
It is also recommended that a more rigorous campaign be embarked upon in order to
showcase law enforcement successes and the consequences of customs violations. This
Details in relation to seizures are
recorded, however the depth of this information in relation to
undertaken by the National
Investigations Team. Detail in relation to these investigation
c)
provisions. The National Treasury‘s Register of Tender Defaulters and the provisions of
legislation (item discussed in paragraph 5.3.1.1 supra).
Paragraph 3.1.4, page 28 refers.
Chapter 6 of the Prevention and Combating of Corruption Activities Act 12 of 2004 can be
used as a model for development of such a list. This will have to be supported through close
There is an established
co-operation among investigating and prosecuting authorities to ensure that there is due
enforcement capacity within SARS that covers the areas of criminal
process of the law. It is submitted that this will greatly contribute to the deterrent effect of
investigations and prosecutions, national investigations and significant
sanctions.
case management across the full SARS portfolio. There is however
limited resources dedicated to customs investigations.
It is recommended that proposals be considered for the creation of an Offenders‘ Register to
‗name and shame‘ convicted customs fraudsters, and one that is supported by blacklisting
records was not provided due to the secrecy clause in SARS
c)
On 23 October 2009, SARS published the Customs and Border Management External
d)
Refer paragraph 3.2.5. SARS confirmed they are currently putting together a broker database,
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Gaps Identified
which would contain detail of seizure and detention trends per broker, with the intention of
identifying repeat offenders. We recommend that this process be expedited, and extended to
include a full non-compliance portfolio (e.g. non compliance with regards to tariff
classification, valuations, mis-declaration of country of origin), not only regarding seizures and
detentions. The revised monetary penalty system should make provision for the creation of
this non-compliance database. Penalties must be concomitant to the degree of infringement
and the legacy of infractions. It is recommended that these should be key features of a
revised monetary penalty system.
e)
Refer paragraph 5.3.4.4 (a) and (b). We recommend that SARS increases its enforcement
capacity with dedicated specialized skills allocated to customs investigations, and continuous
training through the SARS Customs Academy to ensure that such individuals remain abreast
of new legislation, policies and initiatives. Refer paragraph 5.3.3.2 - such individuals should
have representation on the Customs National Stakeholders Forum to provide feedback to this
Forum on practical constraints experienced by investigators with current legislation and
policies; to enable the Forum to suggest, formulate and implement appropriate and suitable
policies and legislative amendments.
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5.3.2
ADMINISTRATIVE INSTRUMENTS
5.3.2.1
Gaps Identified
a)
a.
Paragraph 3.6.1.2 refers. Frequent restructuring within SARS has resulted in amended portfolios
and little or no evidence of integrated understanding of roles and responsibilities within the customs
implementing a human resource capacity strategy for the
environment. This poses a challenge to communication, co-ordination and the continuity of
commitments made to the Parliamentary Committee to increase
initiatives, resulting in project or program fragmentation and unreasonable and costly
the capacity of customs staff to 5,000 by 2011. Also refer to
implementation delays.
the recommendations made in paragraph 5.3.1.7(e) above.
In addition in results in a lack of accountability amongst officials for
ensuring the successful implementation of long awaited and much needed initiatives.
b)
SARS is to give immediate attention to designing and
b.
ICC Guideline 31 (Ombudsman) calls for the appointment of an
Paragraph 3.1.6 refers. There is a disproportionate resourcing for customs within SARS: just over
experienced customs officer as a central enquiry access point,
2,600 staff service customs whereas its total staff complement is in excess of 14,000. Commitments
to assist traders in approaching or raising queries with the
made to increase the capacity of customs staff to 5,000 by 2011 are void of any human resource
administration. This could also be a useful and effective portal
capacity strategy or plan.
for trade assistance in reporting unusual or suspicious
circumstances to customs It is recommended that consideration
c)
The National Investigations Team (under the auspices of the SARS Enforcement Unit) is split
be given to creating such a dedicated function within the
provincially. They apply a disintegrated model whereby the investigation teams are allocated a
customs model.
range of investigations covering:Income tax
VAT
Customs and excise
Debt and PAYE
Outstanding returns etc
This unit currently has capacity to initiate approximately 600 investigations per year (only
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Gaps Identified
approximately 100 of these being customs related). Whilst they do have skilled investigators who
are specialised in certain areas (e.g. clothing) the level of dedicated skilled capacity in the customs
area is unclear. They make use of the customs academy where space is available and course
content suitable to the needs of the team. There is a growing need for the customization of courses
within the enforcement environment.
5.3.2.2
Programmes/Systems/Initiatives to Facilitate Customs Operations
Gaps Identified
a)
a)
Paragraph 3.1.8.1 refers. The current customs system, CAPE, operates independently from the risk
targets and official accountability for the implantation of
introduction of TATIS, the first phase of implementation due to commence between July and
modernization initiatives.
October of 2010 driven by the Modernisation team at SARS, the risk engine will be incorporated
into the customs management system. The implementation of the system and subsequent and
b)
Control Bill does place emphasis on electronic reporting and
reliant on the effectiveness of this roll-out. TATIS will furthermore allow for a number of system
declarations in order to speed up processing, reduce errors and
plug-ins, notably the SAP Finance module.
enable effective risk assessment. This has the added advantage
of being paperless, thereby lessening the carbon footprint of
The Revised Kyoto Convention requires Customs to apply information technology to support
the process.
customs operations, wherever it is cost-effective and efficient for both Customs and trade. It
provides administrations with detailed guidelines on how to apply and implement information
c)
techniques.
Paragraph 3.5.2.2 refers. The lack of computer systems and connectivity at many of the ports of
The recommendations made in paragraphs 5.3.1.1(c), and
5.3.1.7(d) applies to the gaps listed in this section of the report.
technology for the clearance of goods, carriers and persons, thus assisting Customs to deal with
the demands generated by electronic commerce. It also provides for the use of risk management
It is also recommended that ICC Guideline 32 (electronic filing)
be referred to in further development of ICRAS. The Customs
supportive elements of the preferred trader scheme and the automated acquittal system will be
b)
SARS is to determine dedicated time frames, implementation
engine (ICRAS) and information is merely interfaced between the two systems. With the pending
d)
The role-out of the recommended Price Reference Guidelines
for identified products must be developed in cooperation with
industry stakeholders and be cognisant of international norms.
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Gaps Identified
entry may negate many of the advancements in electronic developments.
c)
In the development of the concept, reference has been made
to Brazil‘s successful use of the pricing guideline to combat the
In relation to statistics available to effectively manage the risk of fraud and compliance, only two
flood of cheap imports. Reference price guidelines entail the
sources are made available:i)
determination of a base price for a particular item for purposes
of calculating customs duty which traders will be obliged to pay.
Paragraph 3.2.5 refers. Seizures as contained in the SARS Dashboard. Whilst there are
threads of consistency in the measured commodities year on year, an accurate
e)
We recommend designated that SARS consider implementing
measurement is difficult. Initiatives are afoot to develop this further to include compliance
Ports of Entry (POE) for specific products. This would facilitate
data records of traders;
the placement of relevant officials like sector specialists at ports
ii) Paragraphs 3.4.1.4 and 5.3.1.1 c) refer. The usefulness of import statistics is limited by the
format in which they are supplied by SARS. Official import statistics reflect the total
import quantity and value of a product from a specific country per month or year;
of entry. The Malaysia model includes designated ports of entry
and exit, which is gazetted under the Malaysian Customs Act
and listed in the Customs Regulations and can be a useful
reference in this regard.
iii) Statistics are not given per consignment and details like the port of entry and the purpose
code (Warehouse Entry, General Rebate, Industrial Rebate, and Warehouse for Export)
are generally not made available by SARS;
iv) Paragraph 3.4.2.1 refers. Furthermore, Section IV of the Customs and Excise Act as well as
Sections 22 to 24 of the draft Customs Control Bill prohibits SARS from making known
the names of importers.
The aforementioned information is essential to monitor and analyse the imports of a product in a
meaningful manner and to identify possible fraudulent activity.
d)
Paragraph 3.6.1.2 refers. Customs officials have insufficient product knowledge to frame a
reference for pricing of products when reviewing declarations and validating values.
e)
Paragraph 3.1.5.1 refers. BCOCC initiatives:
Implementation of the National Integrated Border Management Strategy is fragmented,
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Gaps Identified
lacks enforcement impetus resulting in the BCOCC widely being viewed as a body which is
relatively ineffective in relation to its mandate.
Notwithstanding, there are sub-committees which appear to be consolidating the
collaborative effort. One such structure is amalgamated and based at the national police
headquarters of the Port of Entry Department in Pretoria and comprises SARS, Home
Affairs, SAPS and others.
However, it appears that the focus may not be on imports but rather on major events and
immigration.
f)
Paragraph 3.1.4 refers. Internal Anti-corruption initiatives. Although there is a policy in place, the
assessment survey thereof (December 2008) raised a number of disturbing internal risks that
require further attention. Identified areas of risk included responses relating to:
-
The reporting of corruption
-
Measures to deal with corruption
-
Corruption at SARS in comparison to other government departments
-
General responses in relation bribery, nepotism and favoritism
Some useful initiatives being undertaken within the countries selected for benchmarking include:
Canada: All systems are fully electronically integrated, not only within the customs administrative structure but also with other enforcement agencies and stakeholders - EDI
compliant.
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Programmes:

Customs self assessment, see paragraph 4.2.4.6– this includes the registration of drivers in the case of land crossings. This may not be feasible in South Africa

Partners in Compliance (pilot programme) see paragraph 4.2.4.7

Partners in Protection see paragraph 4.2.4.8
Free and Secure Trade (FAST), see paragraph 4.2.4.11– an initiative to expedite the processes through established agreements. Conditions are that parties must undergo
thorough risk assessment to qualify for participation. The principles of this initiative can be applied in South Africa particularly in relation to the challenges with the other SACU
member countries (BLNS).
Canada/US: Smart Border Declaration; Cross Border Crime Forum; Joint Targeting Initiative; Marine Trade Security (includes component of Advance Cargo Reporting) see
paragraphs 4.2.4.12, 4.2.4.13, 4.2.4.15 and 4.2.4.16– a risk assessment is done prior to the goods leaving the ports of origin).
India: Icegate – is an up and running electronic filing system that has been praised for its effectiveness (users must be registered). India has also adopted a Customs Risk
Management System, which covers 85% of India‘s international trade. Refer paragraph 4.5.8.2.
France: It has emerged that there is a multitude of systems including EIS, SIS, CIS and Customs File Identification Database and that this has resulted in duplication, issues of
mandate and concerns about operational capabilities. The programmes are currently under review. There are proposals to automate and allow for electronic transmission of
declarations in order to conduct adequate risk assessments. It is worth noting the challenges faced by France, since it is a key recommendation of this report that South Africa also
aims at consolidation of the regulatory framework and rationalisation of mandates of the various agencies.
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5.3.3
LAW ENFORCEMENT – LEVELS OF COOPERATION/COORDINATION AMONGST ENFORCEMENT AGENCIES AND BETWEEN
ENFORCEMENT AGENCIES, BUSINESS AND LABOUR
5.3.3.1
Formal Co-Operation Arrangement between Domestic Enforcement Agencies
Gaps Identified
a)
a)
Paragraph 3.1.5.1 refers. BCOCC
It is recommended that SARS as the lead agency of the BCOCC re-evaluate the interrelationship among the various enforcement agencies, and that complementary roles and
It has no enforcement ability
responsibilities be properly defined in line with the Integrated Border Management Strategy.
This will clarify the common goals and contribute to a comprehensive enforcement approach.
Its initiatives and strategy lack a coherent and integrated
In addition it may assist to foster a culture of individual accountability amongst officials of the
implementation plan
various agencies.
There are conflicting priorities among its members and a
distinct
lack
of
shared
vision
and
responsibilities/
b)
Unions should … aim to secure the co-operation of commercial, fiscal, banking and other
accountability
b)
commercial fraud.‖118
officials of SARS and SAPS that arise during joint operations at the
investigation and prosecution of import fraud. This can also be re-enforced through the National
ports of entry. One such problem relates to the varying salaries of
Stakeholder Forum lead by SARS.
different departments or agencies. Furthermore, the policies of the
different departments based at the ports of entry sometimes differ,
such as on housing. This has led in some cases to tension among
officials, which is not conducive to co-operative functioning. (2008
AG report on Performance Audit of Border Control at the SAPS.)
Paragraph 3.1.5.3 refers. The MOU between SARS and SAPS has
not been signed although it was drafted in 2008. Although it is clear
118
authorities involved in international commerce and trade, to assist in combating Customs
Paragraph 3.1.5.3 refers. There are indications of tension between
similar level employees based at the same port of entry, and from
c)
WCO has urged that, ―Members of the Customs Co-operation Council and Customs or Economic
c)
It is highly recommended that such initiatives be undertaken in the
It is recommended that MOU‘s be formalised on operational level among the various
departments or agencies responsible for the implementation of the regulatory framework. Key
agencies include inter alia: SARS, the DTI, ITAC, SAPS, DAFF. Such agreements should contain
guidelines/prescriptions based on the mandates and SOP‘s in terms of the legislation of the
respective agencies for the establishment of formal structures for communication, the allocation
of administration responsibilities, type of information-sharing required, level and frequency of
consultation required and accountability within the agencies must be assigned to specific official
designations. The purpose of these agreements is the coordination and harmonization of
RECOMMENDATION OF THE CUSTOMS CO-OPERATION COUNCIL CONCERNING ACTION AGAINST CUSTOMS COMMERCIAL FRAUD (1 July 2006)
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Gaps Identified
that the intention and commitment of SARS and SAPS is to work
customs related activities and in order to address the issue of lack of timeous access to critical
collaboratively together, this is not reflected sufficiently at an
information impacting on the efficiency and the effectiveness with which customs fraud issues
operational level. There appears to be a disturbing trend of
are dealt with. The establishment of an electronic interface based on the Canadian OGD model
territorial attitudes which is a serious cause for concern and is not
(refer paragraph 4.2.4.4) would facilitate the co-ordination and harmonization between the
in the interest of business, labour, government or the country as a
relevant agencies.
whole.
d)
Paragraph
d)
3.5.3.3
refers.
Other
agencies,
i.e.
Health
and
The MOU drafted in 2008 between SAPS and SARS should be signed and implemented as soon
as possible.
Agriculture have very little capacity to ensure enforcement with
legislation and regulations.
Some useful initiatives being undertaken within the countries selected for benchmarking include:
Canada:
Integrated Border Enforcement Teams (IBETS), see paragraph 4.2.4.14 – Canada / US initiative which is a combination of intelligence and law enforcement expertise
Other Government Department Interface (OGD), see paragraph 4.2.4.4 – joint initiative between government departments and CBSA. Electric interface that shares
information presented by traders in advance
CFIA (Canada Food Inspection Agency)/ACROSS Interface system see paragraph 4.2.4.5 - whereby importers and brokers can transmit release information on CFIA
regulated goods to the CBSA, which in turn transmits this information to the CFIA. The interface capabilities of this programme are noteworthy. Importers and brokers have
access to current requirements in relation to EDI requirements. It can be described as a one stop shop, which is more ergonomical for stakeholders and thereby facilitates
effective trade
Malaysia: there are formal co-operation agreements with neighbouring countries‘ border control agencies at operational levels such as: Thailand, Brunei, Indonesia, Singapore, The
Philippines and USA (Mega port Initiative and CSI).
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5.3.3.2
Multi-Sectoral Forum for Customs
Gaps Identified
Whilst there is an established forum under the auspices of
a)
Creation of sector-based forums: paragraphs 5.3.1.1 (c) and 5.3.3.2 (c) refer. ICC Guideline 30 (Memoranda
the Customs (National) Stakeholders Forum, the absence
of Understanding) supports the use of formal Memoranda of Understanding to enhance co-operation between
of a forum in which sector relevant issues can be
Customs and the trade community. This is in respect of information exchange, security and training, with
addressed and discussed has been flagged.
obvious associated benefits in the interdiction of Customs fraud and so the support of Customs integrity. The
dairy industry has established a forum (see paragraph 3.4.2.2) with representatives from the Departments of
Paragraph 3.4.2.2 refers. Sector representations and
Health and Agriculture and SARS where all issues relating to imports, including customs fraud related matters
training initiatives to customs officials vary in extent,
and training are addressed. The forum is unique owing to it creating a platform for cooperation,
frequency and effectiveness. All sectors researched are not
communication and consultation by all the role players involved in the operational issues around imports. It is
satisfied with the level of support by SARS. The lack of
recommended that this model be duplicated and extended to include ITAC, the DTI and labour in sectors
cooperation and coordination between SARS and the
where customs fraud is prevalent and the risk inadequately addressed. It is further recommended that MOU‘s
Departments of Agriculture and Health was flagged by the
be formalized between the members of the forum. Such MOU‘s should contain prescriptions based on the
agriculture sectors researched.
mandates of government, labour and industry representatives for the establishment of formal cooperation
and communication structures, the allocation of administration responsibilities, type and frequency of
information-sharing required, procedures to be followed when a suspect import transaction is identified, level
and frequency of formal consultation required and accountability within the individual members of the forum
must be assigned. This should go hand-in-hand with specific targets set on the improvement of the
communication between the various agencies and sector representatives, as well as support that the sectors
receive from the various agencies. The purpose of such agreements would be to enhance cooperation,
coordination and transparency between the role players in government, business and labour involved in
dealing with customs fraud issues.
b)
It is further recommended that the above sector-based forums be given representation on a national forum,
which body could be the Customs National Stakeholders Forum. Please refer to paragraph 5.3.1.7(e) where it
is recommended that specialist Customs investigators also be given representation on this forum.
It is
recommended that the TOR of the Customs National Stakeholders Forum be revised to ensure the inclusion of
representatives of the sector-based forums.
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*Interesting reading: Canada has the Partners in Compliance initiative, which aims for business to attain the highest rate of compliance with the CBSA. The features of this
programme should be reinforced in relation to the AEO infrastructures and preferred trader scheme being developed for South Africa.
5.3.3.3
Mutual Administrative Agreements
Gaps Identified
Paragraph 3.1.2 refers. Although such agreements are
a)
It is recommended that SARS, the DTI and DAFF undertake a review of its significant international trading
valuable, especially in the event of suspicious transactions,
partners and pursue the adoption of mutual administrative agreements with these countries, which may aid in
some terms of these agreements are too restrictive
eliminating the risks associated with import fraud. It is further recommended that the negotiated mutual
(confidentiality obligations and sovereignty protection) for
administrative agreements on customs that have been ratified in South Africa only, or have not yet entered
effective enforcement. Currently, South Africa only has
into force; be expedited.
such agreements with Algeria, People‘s Republic of China,
India, France, USA, UK, Mozambique and the Netherlands
*Interesting reading: It is worth noting the WCO proposals that, ―Members of the Customs Co-operation Council and Customs or Economic Unions should:
Increase their efforts to co-operate at bilateral, regional and international levels in the fight against Customs commercial fraud;
Endeavour to provide administrative assistance in the prevention, detection and repression of the Customs commercial fraud and give appropriate feedback to those Member
administrations providing such assistance;
Examine the possibility of concluding bilateral or multilateral agreements for the exchange of information relevant to Customs commercial fraud, and consider acceding to
the Council‘s International Convention on Mutual Administrative Assistance in Customs Matters (Johannesburg Convention);
Endeavour to apply the operational instruments and guidelines of the Customs Cooperation Council, such as the Guide to the Exchange of Customs Valuation Information, in
their day-to-day operations.‖119
The following international conventions can be borne in mind to spearhead the conclusion of mutual administrative agreements:
119
RECOMMENDATION OF THE CUSTOMS CO-OPERATION COUNCIL CONCERNING ACTION AGAINST CUSTOMS COMMERCIAL FRAUD (1 July 2006)
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In terms of the International Convention on the Harmonization of Frontier Controls of Goods, 1982, Article 4. - "The Contracting Parties should undertake, to
the extent possible, to organize in a harmonized manner the intervention of the Customs services and the other control services."
Convention on International Civil Aviation, Annex 9(4.17.1) Recommended Practice - "Contracting States, in giving effect to 4.17 (I.39), should encourage to the maximum
extent practicable, alignment of documents required for the clearance of import cargo with the United Nations Layout Key for Trade Documents, to follow the format set forth in
Appendix 9 (to Annex 9) - United Nations Layout Key for Trade Documents."
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5.3.4
LEVEL OF RESOURCING OF ENFORCEMENT AGENCIES (SARS/ITAC/SAPS)
5.3.4.1
Visibility at Ports of Entry
Gaps Identified
There is insufficient visibility of officials at ports of entry due
Refer paragraph 5.3.2.1(a) - SARS is to give immediate attention to designing and implementing a human
to resource constraints.
resource capacity strategy for the commitments made to the Parliamentary Committee to increase the capacity
of customs staff to 5,000 by 2011. Also refer to the recommendations made in paragraph 5.3.1.7(e) above.
Incorporated into this process should be conducting a needs analysis of ports of entry, possibly under the
auspices of the BCOCC. This must take into account the nature and volumes of imports in order to ensure the
necessary numbers and expertise of officials to address import fraud.
5.3.4.2
Staffing at Ports of Entry
Gaps Identified
a)
a)
Paragraph 3.1.6 refers. There is inadequate staffing of
customs officials, particularly at land ports.
b)
various enforcement agencies, and that complementary roles and responsibilities be properly defined in line
with the Integrated Border Management Strategy. This will clarify the common goals and contribute to a
Paragraph 3.1.6 refers. SAPS have inspection teams
comprehensive enforcement approach.
operating under the auspices of the Cargo Crime
In addition it may assist to foster a culture of individual
accountability amongst officials of the various agencies.
Combating Unit, however no specialised investigators
of commercial crime are stationed at ports of entry.
It is recommended that SARS as the lead agency of the BCOCC re-evaluate the inter-relationship among the
b)
The MOU drafted in 2008 between SAPS and SARS should be signed and implemented as soon as possible.
This means that customs and commercial-related
It is further recommended that SARS and SAPS should agree on establishing a dedicated joint Customs
crimes do not receive priority attention.
Fraud Investigation Task Team to ensure that these cases are investigated by specialists based at key ports
of entry
-
At ORT, investigations of commercial-related
crimes are not conducted by the airport SAPS
c)
Refer paragraph 5.3.4.4 (a) and (b). We recommend that SARS increases its enforcement capacity with
dedicated specialized skills allocated to customs investigations, and continuous training through the SARS
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Gaps Identified
personnel
-
It is investigated by the JHB Commercial Crime
SAPS.
-
Dockets are registered at OR Tambo and then
Customs Academy to ensure that such individuals remain abreast of new legislation, policies and initiatives.
Refer paragraph 5.3.3.2 - such individuals should have representation on the Customs National Stakeholders
Forum to provide feedback to this Forum on practical constraints experienced by investigators with current
legislation and policies; to enable the Forum to suggest, formulate and implement appropriate and suitable
policies and legislative amendments.
transferred to the JHB Commercial Crime to be
investigated
-
It has been reported to us that sometimes these
case dockets remain uncollected at the OR
Tambo SAPS station for days
ICC Guideline 41 (Customs Experts) specifies provision of customs experts to advise traders on valuation and other procedures. It is recommended that this be incorporated into the
South African scenario, bearing in mind the needs at the various ports of entry.
In Malaysia, there are concerns around prevalence of staff being poached from customs administration bodies into the private sector, and assisting with exploiting loopholes. This
appears to be the trend in South Africa also. It is recommended that SARS adopts an effective staff retention strategy along with succession planning in order to ensure that this risk is
alleviated to the best extent possible.
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5.3.4.3
Facilities at Ports of Entry, including Inspection Equipment
Gaps Identified
a)
a)
Land ports:
The recommendations of the 2008 AG‘s report must be implemented and acted upon as a
matter of extreme urgency.120 A summary of key recommendations include:
-
Paragraph 3.5.3 refers. Generally have insufficient lighting, cargo
scanners and weigh bridges;
-
Finalisation and approval of the strategy documents should be prioritised to give
Paragraph 3.5.3 refers. There is a lack of boundary fences at some
land ports which are a result of damage or neglect;
-
A specialized borderline-specific crime intelligence structure, in collaboration with
Insufficient cameras and surveillance equipment aid criminals with
trans-border crime;
-
structure to the borderline policing process in line with the 2003 Cabinet lekgotla;
Paragraphs 3.5.2.22 and 3.5.3.3 refer. Insufficient offloading and
inspection facilities, particularly at land border posts results in a
lack of or ineffective inspections.
intelligence agencies from neighbouring countries and international role-players,
should be established,
Properly constituted borderline-specific training programmes should be formulated and
implemented in conjunction with the relevant government departments to ensure
improved service delivery;
Implementation of the proposed personnel structures for all borderlines policed by the
SAPS should be prioritized effectively to combat the illegal movement of persons and
b)
Technical infrastructure – systems: connectivity is very restricted and
goods along the borders;
The BCOCC should oversee the handover of SANDF borderline equipment to the SAPS
there is not always interoperability.
on terms of the entry and exit strategy;
c)
Paragraph 3.1.7 refers. One big mobile container scanner is located at
the
Durban
harbour.
SAPS/SARS
jointly
requested
funds
for
procurement of the scanner from Treasury. Funds were allocated and
SARS handled the process. SAPS was of the view that the scanner will
be shared but SARS controls the use of the scanner and it‘s availability
120
The frequency of patrols at areas where there are no fences to demarcate the
borderline should be increased. Also, compensating patrol / monitoring processes
should be implemented at mountainous areas which cannot be patrolled by
conventional vehicular means;
to SAPS is limited. SAPS/SARS are considering a MoU regarding the use
An arrangement should be entered into between the SAPS and the SANDF (Navy)
of the scanner. Information has come to light that on at least one
regarding joint operations to fulfill the sea borderline policing function in the most
Report of the Auditor General on a Performance Audit of Border Control at the SAPS (17 January 2008) p16
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Gaps Identified
occasion the scanner was utilised during a political event. It is unclear
as to whether it was utilised for security purposes or not.
Notwithstanding, this detracts from its original and key functions at this
port of entry.
efficient manner;
Adequate management oversight measures should be instituted to ensure that air
borderline operations are performed in accordance with the relevant strategy; and
A coordinated structure should be established with the SANDF (SAAF) with regard to
d)
The 2008 AG report on Performance Audit of Border Control at the
the use of radar and other specialized equipment to prevent air borderline crossings.
SAPS highlighted a number of issues of concern; but these do not
appear to have been adequately addressed. These include:
-
Delays in the procurement process which result in a shortage of
necessary equipment to enhance the search function
-
Equipment is under-utilised because of a lack of training in the use
of devices, inappropriate allocation of equipment, and deficiencies
in their maintenance and repair
The benchmarked countries have the following which can be used as a frame of reference for recommendations:
Canada: Wide range of highly sophisticated equipment (with a focus on terrorism, drug and people smuggling). In addition, there are:mirror kits for inspecting under the carriage of containers
probes for inspecting bulk loads of goods
laser range finders to measure the length of containers
density gauges, and long and short-pole reach cameras for viewing hard-to-reach places
France: Have very well-resourced vehicle, marine and air fleets, and equipment for detection and inspection.
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It is recommended that the provisions of the following international instruments be incorporated in order to address these constraints:
ICC Guideline 14 (Selective Examination) supports targeting suspect consignment through automated compliance measurement and risk-assessment systems
ICC Guideline 17 (Non-intrusive Inspection) looks to methods which obviate the need for actual disturbance of packing, container or means of transport
Kyoto Convention, Annex B.1(38) Standard - "When examining goods, the Customs authorities shall take only such action as they deem essential to ensure compliance with
the laws and regulations which the Customs are responsible for enforcing.
"Notes: - The examination of goods may be either summary or detailed. In a summary examination the Customs may carry out some, though not necessarily all, of the following
checks - counting the packages, noting their marks and numbers and ascertaining the description of the goods. Detailed examination involves thorough inspection of the goods to
determine as accurately as possible their composition, quantity, tariff heading, value, and, where necessary, origin.
"- Detailed examination of the goods is warranted, in particular, where the Customs authorities are not satisfied about the accuracy of particulars furnished in the declaration or in the
supporting documents.
"- Goods liable to high import duties and/or taxes may be regularly subjected to detailed examination."
Convention on International Civil Aviation, Annex 9(4.30) - "Contracting States shall accomplish their physical examination of cargo imported by air on a sampling or
selective basis. The appropriate public authorities of the State concerned shall also, in consultation with, inter alia, operators and airport administrations, devise physical
means for carrying out such examination rapidly."
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5.3.4.4
Training and Capacity Building
Gaps Identified
a)
a)
Paragraphs 3.5.3 and 3.6.3.1 refer. SARS: There is generally limited
It is recommended that the initiative by the Customs Academy to establish Centres of
technical expertise of customs officials in respect of commodity and
Excellence (COE‘s) using experienced officers be expedited.
the ability to distinguish between commodity items. Furthermore,
following:
They aim to deal with the
capacity to calculate and assess the accuracy of duties payable is
Industry specialists
lacking. Business / industry training input and requests are
unstructured.
b)
Customs regimes (tariff classifications; valuations; rule of origin)
Paragraph 3.1.8.1 refers. Although the customs academy is a
Customs functions (i.e. aircraft rummage)
laudable initiative, it lacks sufficient training capacity and knowledge
in the customs environment. The academy claims to train up to 500
Refer paragraph 5.3.3.2(a): we further recommend that the sector-based forums (to be
customs officers a year, but the focus has been on the basics.
established) also be involved in and consulted with on the creation of the Centres of
Attempts at setting up schools of customs administration with local
Excellence.
universities have not been successful.
c)
Paragraph 3.1.6 refers. SAPS: There is a basic border control course
that new SAPS port of entry personnel are taken through and there is
also industry specific training. SAPS personnel are not given any
customs specific training but much of the training that members
receive will be experience based and through mentorship. Thus, there
is no focused internal training, and skills are reliant on experience and
business initiatives.
b)
The Customs Academy must be formally structured and established with dedicated courses of
specialisation. Refer paragraph 5.3.3.2(a): we further recommend that the sector-based
forums (to be established) be utilized as vehicles for the implementation of training initiatives.
It is also recommended that members of SAPS who perform duties at the ports of entry,
specifically inspections, should be trained by the Customs Academy within SARS. Successfully
completing these courses should be a pre-requisite for customs officials of specific levels and
application. Customs Academy management should ensure that the input of sector/industry
representatives is incorporated into the course content.
Industry representatives have
indicated their willingness to support such training on a time and financial basis.
In furtherance of these initiatives, it is recommended that the provisions of the following international instruments be taken into account:
205 | P a g e
i.
ICC Guideline 3 (Customs Workforce) sets some basic requirements in salary levels, recruitment, promotion and career management.
WCO: RECOMMENDATION OF THE CUSTOMS CO-OPERATION COUNCIL CONCERNING ACTION AGAINST CUSTOMS COMMERCIAL FRAUD (1 July 2006): Members of the
Customs Co-operation Council and Customs or Economic Unions should: Include specialized training on Customs commercial fraud in training curricula and ensure that staffs
are adequately trained in this regard.
ii.
Customs Capacity Building Strategy prepared by the World Customs Organization on behalf of the International Customs Community. This strategy is an attempt to respond to
the WTO Doha Ministerial Declaration in November 2001, where the role of capacity building is highlighted in customs-related areas.
iii.
WCO‘s training instruments and technical material could be categorized as:
I.
Technical and training publications
II. Guidance in designing an effective customs enforcement structure and implementing control measures
III. Bilateral and multilateral instruments for administrative assistance, including for a better exchange of information.
The benchmarked countries have the following programmes that are useful guides in the roll-out of training to customs officials:
Canada: CBSA National Learning Centre annually trains 630 new recruits who will be stationed all across Canada as Border Services Officers (BSOs). The Port of Entry Recruit
Training (POERT) program currently consists of 13 weeks of training. A newly graduated recruit of this program is trained in all three legacy functions (FPA, Immigration and
Customs).
France: Customs Fellowship Programme, which also has training programmes for other countries together with WCO. There is also an e-learning course in customs and taxation
through Taxation and Customs Interactive Campus (TACTIC).
Malaysia: the Customs academy provides training internally and externally to trading partners. They provide mentorships both internal to and external of the customs
administration body.
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6
SOURCE LIST
This source list includes reference to organizations, individuals, articles, books and
websites.
GENERAL RESEARCH SOURCES
1.
LEGISLATION, REGULATIONS, RULES, TEXT BOOKS, WEBSITES
Snyman, CR, Criminal law, Fourth Edition, 2002
WTO Agreement on Customs
http://www.wto.org/english/docs_e/legal_e/legal_e.htm
WTO Agreement on Agriculture
Customs and Excise Act and Schedules
http://www.sars.gov.za/lnb/mylnb.asp?/jilc/kilc/egqg/ttqg/utqg
http://www.info.gov.za/view/DownloadFileAction?id=71016
International Trade Administration Act, No 71 of 2002
Agricultural Product Standards Act, 1990
Agriculture Pest Act, No 36 of 1983
Animal diseases Act, No 35 of 1984
Foodstuffs, Cosmetics and Disinfectants Act
Motor Industry Development Programme (MIDP)
Livestock Act
Criminal Procedure Act, No 51 of 1977
207 | P a g e
Counterfeit Goods Act, No 37 of 1997
Copyright Act
Merchandise Marks Act, No 17 of 1941
National Ports Act, No 12 of 2005
SA Civil Aviation Act
Cross Border Road Transport Act, No 4 of 1998
Guidelines for Agreements and Licences and Permits in terms of the National Ports Act
Draft Port Rules in terms of the National Ports Act
Airports Company Act, No 44 of 1993
South African Maritime Safety Authority Act, No 5 of 1998
Merchant Shipping Act, No 57 of 1951
Currency and Exchange Act, No 9 of 1963
Immigration Act, No 13 of 2002
The Constitution of the Republic, 1996
Chapter 3 of the Constitution – Rules of Engagement
The South African Police Service Act, No 68 of 1995
Marine Living Resources Act, No 18 of 1998
National Environmental Management Act, No 107 of 1998
Standards Act, No 29 of 1993
2.
MULTILATERAL AGREEMENTS AND OTHER RELEVANT REGULATION
GATT – General Agreement on Tariffs & Trade
Kyoto Convention
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National Integrated Border Strategy (NIBS)
Southern African Customs Union (SACU)
Southern African Development Community (SADC)
European Union (EU)
European Free Trade Association (EFTA)
Africa and Growth Opportunity Act (AGOA)
India-Brazil-South Africa (IBSA) Trilateral Agreement
http://www.ibsa-trilateral.org//index.php?option=com_frontpage&Itemid1
3.
GOVERNMENT DEPARTMENTS
International Trade Administration Commission (ITAC)
Directorates: Trade Remedies , Tariff Investigations and Import and Export Control
http://www.itac.org.za
Border Control Operational Co-ordination Committee (BCOCC)
Current Chair – William Mype – SARS Group Executive (012 422 5945)
wmpye@sars.gov.za
SAP representatives
Director Khonto
Director Chilembe (082 575 5052)
South African Revenue Services (SARS)
Executive: Customs Risk Management – Patrick Matlotsi (083 555 4536) pmatlotsi@sars.gov.za
Bernd Schlenter – Senior Manager (083 555 4691) bschlenter@sars.gov.za
Lusanne Fouche (082 781 8839) – lfouche@sars.gov.za
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Isaac Tau (082 447 3560) – itau1@sars.gov.za
Research & Segmentation – (prior research papers and surveys per sector)
Cliff Naude (083 555 3537) – cnaude@sars.gov.za
Helena Tripmaker (082 451 8251) – htripmaker@sars.gov.za
Customs Strategy & Policy
Erich C Kieck - Group Executive: Customs Strategy and Policy (PA Elizabeth) Tel (+27 12) 422
4988 <ekieck@sars.gov.za>
Christine Malan – Senior Manager Customs SOP‘S (082 828 1390) cmalan@sars.gov.za
Lucky Molefe – International Trade & Customs Policy Tel (+27 12) 422 6462
Thabile Ntombela – Strategic partnerships (inter-government & business)
Stats and reporting (Trade statistics and dashboard and other reporting
Jack Heyns – Stats & Analysis (082 461 7113) – jaheyns@sars.gov.za
Loshni Naidoo – Customs Business reports
Mcebisi Basi – Customs Dashboard & Activity Based Management Portal – (083 447 2732)
Lerato Dirapelo – Customs Dashboard – (073 866 2010 / 012 422 4352) ldirapelo@sars.co.za
Max Ramnath – Customs Dashboard – (012 422 6567) – mramnath@sars.gov.za
Yvonne Jelink – Surveys - (012 431 9106)
Operations & Modality Executives (key points – airport; marine, land & rail)
Cassues Sinthumile – (082 464 8983) csinthumile@sars.gov.za
Airport - Anand Khelawon (082 447 3537) akhelawon@sars.gov.za
Marine – Leon Potgieter (082 720 7650)
Land & Rail – Gugu Africa (Sydwell Phokane) (082 371 1442)
Enforcement
Johan van Loggenburg - Enforcement: Special Operations (082 456 1607) (PA Karin Verster)
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kverster@sars.co.za
Ronel van Wyk – Criminal Investigations and Prosecutions
Nelson Phayane – Illicit Economy Research unit (012 422 6836)
Anti-Corruption and Security
Clifford Collings – Executive (083 300 0177)
Carla da Silva – Research and Analysis (surveys and analysis)
Yousaf Denath & Eben Schoeman – Special Projects
Legislative Interpretation (tariff & valuation determinations; trade agreements & rules of origin)
Penny Bologo - Senior Manager (082 557 4122)
Zanemvula Miza – Acting Valuations Manager (012 422 4451)
HR – Senior Manager (Customs) – (capacity issues) Manpura Mphahlele
Modernisation & IT
Beyers Theron (082 468 3542)
South African Police Services (SAPS)
Director Chilembe (082 575 5052)
Senior Superintendant S.B Mahlangu – National Section Head: Air Ports
Department of Trade and Industry (DTI)
Embassies/Consulates of Canada, France, Malaysia and India
Department of Foreign Affairs
4.
ASSOCIATION / LABOUR UNIONS
Current Chair – William Mype – SARS Group Executive (012 422 5945) wmpye@sars.gov.za
Labour – COSATU
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Contact person: Mr. Tony Ehrenreich
Industry Bargaining Councils
5.
GENERAL REFERENCE
Transparency International
Global Integrity Report
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SECTOR RESEARCH SOURCES
1.
DAIRY
Milk Producers‘ Organisation (MPO): Mr Bertus de Jongh & Dr Koos Coetzee
South African Milk Processors Organisation (SAMPRO): Mr Alwyn Kraamwinkel
Milk SA: Mr Nico Fouchè
Agri Inspec: Dr Hennie Kleynhans
SARS: various officials
Bureau for Food and Agricultural Policy
Department of Agriculture: Directorates: Agricultural Product Inspection Services, Veterinary Services,
Import and Export Control, Quarantine Services, Food Safety and Quality Assurance
Department of Health: Directorate: Food Control, Port Health Offices
International Trade Administration Commission: Directorate: Tariff Investigations
Investigation into the customs tariff dispensation with respect to dairy products, Report 89, 2004,
Livestock development Strategy for South Africa, 2007 – Department of Agriculture Forestry and
Fisheries
Reports on investigations conducted by Agri Inspec, 2006 to 2009
http://www.daff.agric.za
http://www.doh.gov.za
http://www.melksa.co.za
http://www.dairyconnect.co.za
http://www.sampro.co.za
http://www.sars.gov.za
http://www.bfap.co.za
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2.
RED MEAT
South African Meat Industry Company (SAMIC): Mr Rudi van der Westhuizen
Red Meat Producers Organisation (RPO): Mr Gerhard Schutte
Agri Inspec: Mr Henk Heslinga
Department of Agriculture: Directorates: Agricultural Product Inspection Services, Veterinary Services,
Import and Export Control, Quarantine Services, Food Safety and Quality Assurance
Department of Health: Directorate: Food Control, Port Health Offices
Livestock development Strategy for South Africa, 2007 – Department of Agriculture Forestry and
Fisheries
Reports on investigations conducted by Agri Inspec
3.
FOOTWEAR
Footwear Manufacturers‘ Association (‗SAFLIA‘): Mr Paul Theron
Southern African Clothing and Textile Workers Union (SACTWU): Mr Ettienne Vlok
South African Association of Freight Forwarders (SAAFF): Mr Chris Richards
Department of Trade and Industry: Mrs Elaine Smith
South African Revenue Services: Mr Cliff Naude
Senior Economist, Research and Information, IDC: Mr Nico Kelder
ITAC: Mr Marius Collins
StatsSA: Malerato Mosiane
Beier Safety Footwear: Mr Silvio Ceriani
SAFLIA Annual Report 2009
http://en.wikipedia.org/wiki/Doha_Development_Round
http://www.sars.gov.za/home
http://www.wto.org/english/tratop_e/tariffs_e/tariffs_e.htm
4.
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Textiles Federation (Texfed): Ms Helena Claassens
Cape Clothing Association: Mr Johann Baard
Southern African Clothing and Textile Workers Union (SACTWU): Mr Ettienne Vlok
South African Association of Freight Forwarders (SAAFF): Mr Chris Richards
Department of Trade and Industry: Mrs Elaine Smith
South African Revenue Services: Mr Cliff Naude
Senior Economist, Research and Information, IDC: Mr Nico Kelder
ITAC: Mr Marius Collins
StatsSA: Malerato Mosiane
National Clothing Retail Federation of South Africa: Mr Michael J Lawrence
South Africa Textile Statistics and Economic Review 2008/2009 (issued by the Textiles Federation), July
2009
Cape Clothing Association 2008 Annual Report
http://www.sars.gov.za/home.asp?pid=2630
South Africa Textile Statistics and Economic Review 2008/2009 (issued by the Textiles Federation), July
2009; Government Gazette No 29316 dated 20 October 2006, under Notice No R.1056
Source: TexFed Aide Memoir
http://en.wikipedia.org/wiki/Doha_Development_Round
http://www.sars.gov.za/home
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http://www.encyclopedia.com/doc/1G1-167174134.html
http://www.mg.co.za/article/2009-04-04-chinas-quota-betrayal
http://www.fibre2fashion.com/news/textile-news/newsdetails.aspx?news_id=67056
http://www.bizcommunity.com/Article/196/174/40933.html
http://www.sactwu.org.za/pr031204.asp
http://www.fin24.com/articles/default/display_article.aspx?ArticleId=1518-25_2549091
http://www.commercial-property.co.za/2900_news_SARS-considers-new-customs-rules.html
http://www.pmg.org.za/report/20091020-progress-report-south-african-revenue-service-sars-regardcustoms-fra
http://www.businessday.co.za/Articles/Content.aspx?id=78631
http://www.ifashion.co.za/index.php?option=com_content&task=view&id=1742&Itemid=237
http://www.bizcommunity.com/Article/196/462/38033.html
TexFed Aide Memoir
South Africa Textile Statistics and Economic Review 2008/2009, issued by the Textiles Federation
Cape Clothing Association 2008 Annual Report
5.
TYRES
2008 Report on ―Risks Involved in the Tyre Industry‖ prepared by Helen Mahlake of SARS BIU
Interview with Dr Human of South African Tyre Manufacturers Conference, September 2009
ITAC Report on ―Investigation into the alleged dumping of tyres originating in or imported from the
People‘s Republic of China (PRC)‖
Interview with ITAC representatives
Interview with Dunlop's Marketing Director (Mr George Schram) and the CEO (Mr Luis )
Interview with NRCS (National Regulator for Compulsory Specifications) Official
―Union in bid to stop cheap tyre imports‖ Article in Daily Despatch, 8 April 2009
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South African Tyre Manufacturers‘ Conference
No 182: Investigation into the alleged dumping of tyres originating in or imported from the People‘s
Republic of China: Preliminary Determination, 2005
6.
MOTOR VEHICLES AND PARTS
Burgers, F., Wright, G. and Nel, L. (2007), National initiatives to Prevent and Combat Vehicle Crime
Business Against Crime South Africa, Organised Crime Project, P O Box 784061, Sandton, 2146
SAinfo, 2008
National Association of Automobile Manufacturers of South Africa
National Association of Automobile Manufacturers and Allied manufacturers
Irish, Jenni (2005), Illicit trafficking of vehicles across
Beit Bridge border post, ISS Paper 109. Institute for security Studies, Brooklyn Square, Pretoria, 1-10.
February 16, 2006, Business Report, Burger Fourie, Business Against Crime
Tristan Wiggill , www.autodealer.co.za, No Grey Areas in Imports, 2009-07-20
Superintendent
Ronnie
Naidoo,
Pretoria
Police,
Illegally
Imported
Cars
Flood
SA,
http://www.fin24.com- Mar 27 2007
An e-mail flyer created by Customs @ Wylie, an initiative of Shepstone & Wylie's, International
Transport,
Trade
&
Energy
Division,
http://www.wylie.co.za/%7Duploads/Customs
Flyer13May2008PDF.pdf, down-loaded on October 05, 2009.
http://www.x-rates.com/cgi-bin/hlookup.cgi
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COUNTRY RESEARCH SOURCES
1.
CANADA
Container Security Initiative (CSI) – Durban
Canada Border Services Agency (CBSA): Mrs Christine Bradley
Canadian High Commissioner: Mrs Adele Dion
http://www.cbsa-asfc.gc.ca/
http://www.rcmp-grc.gc.ca/
http://www.forces.gc.ca/
http://www.ccg-gcc.gc.ca/
http://www.tc.gc.ca/
http://www.inspection.gc.ca/
http://www.csis-scrs.gc.ca/
http://www.itac-ciem.gc.ca/index-eng.asp
http://www.rcmp-grc.gc.ca/mari-port/msoc-cosm-eng.htm
http://www.riv.ca/
http://www.ec.gc.ca/alef-ewe/default.asp?lang=en&n=65FDC5E7-1
http://cbsa-asfc.gc.ca/security-securite/pip-pep/
http://cbsa-asfc.gc.ca/prog/nexus/menu-eng.html
http://cbsa-asfc.gc.ca/prog/fast-expres/menu-eng.html
http://www.dfait-maeci.gc.ca/anti-terrorism/actionplan-en.asp
http://www.publicsafety.gc.ca/prg/le/oc/cbc-eng.aspx
http://cbsa-asfc.gc.ca/publications/dm-md/d19/d19-6-2-eng.html
http://cbsa-asfc.gc.ca/whti-ivho/menu-eng.html
http://www.rcmp-grc.gc.ca/ibet-eipf/index-eng.htm
http://www.cbsa-asfc.gc.ca/media/facts-faits/039-eng.html
http://cbsa-asfc.gc.ca/security-securite/csi-irsc-eng.html
http://cbsa-asfc.gc.ca/security-securite/safety-surete-eng.html#s1
http://www.rcmp-grc.gc.ca/fs-fd/bi-if-eng.htm
http://www.tbs-sct.gc.ca/dpr-rmr/2008-2009/inst/bsf/bsf00-eng.asp
http://www.tbs-sct.gc.ca/rpp/2009-2010/inst/bsf/bsf00-eng.asp
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2.
FRANCE
http://ec.europa.eu/taxation_customs/index_en.htm
http://europa.eu/abc/european_countries/eu_members/france/index_en.htm
http://en.wikipedia.org/wiki/History_of_the_European_Union
http://eur-lex.europa.eu/en/legis/latest/chap02.htm
http://europa.eu/geninfo/query/resultaction.jsp?page=1
3.
MALAYSIA
Emerson, CR (1979). Malaysia a study in Direct and Indirect Role
The Environmental Investigation Agency (EIA). Illegal Logging – General Overview, 62/63 Upper
Street, London N1 0NY, United Kingdom
Wilkinson, RJW (1935). The Melaka Sultanate, JMBRAS, VOL. XIII- Pt.2: 31
Wilkinson, RJW (1971). Paper on Malay Subjects, O.U.P., London
http://www.asosai.org/R_P_government-revenues/chapter_15_malaysia.htm
4.
INDIA
http://www.cbec.gov.in/cs-manual.pdf
www.icegate.gov.in
http://www.globalintegrity.org/reports/2006/india/scorecard.cfm?
www.dri.nic.in
http://www.india.travelsphoto.com/india-facts.php
http://www3.uakron.edu/worldciv/india/ind-facts.html
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Customs Fraud and Illegal Imports Final Report

Transcription

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